Wall Street analysts rolled over and lit a cigarette after hearing Caesars Entertainment‘s first-quarter earnings call. J.P. Morgan analyst Joseph Greff said the results were pretty much as expected “with Las Vegas Strip upside more (way more) than offsetting a (modest) Northern Nevada adverse winter weather-related shortfall in its Regional segment (absent this impact, the segment would have been ahead) and a steady reduction/rationalization in Digital, with a near breakeven result.” Breakeven in digital? That is big—and good—news. Greff was moved to utter a “wow” when reporting that Caesars is gaining traction in Strip midweek bookings (good) and convention traffic (even better), with the latter accounting for 21% of room nights, up 50% (with help from triennial CONAG) from a pre-Covid 14%. We’d be orgasmic too if we had skin in the CZR game.
Between recent capex investments and a lack of ongoing disruption, regional Caesars casinos in six states are expected to prosper. As for digital, management believes its product has gotten better and the promotional environment is becoming more rational. “CZR believes current run-rate revenue is presently at scale levels, where incremental revenues from here should flow though increasingly more to generate positive EBITDA.” In other words, a return on investment is finally here. In sum, the Roman Empire’s casinos “remain relatively healthy and steady, despite an uncertain slowing macro.” Greff is sufficiently confident to predict $4 billion in 2023 cash flow, fully half of that derived from the Strip.
This is predicated on 1Q23 cash flow of $996 million (compared to an expected $947 million) and a modest digital loss of $4 million. Debt is a still-scary $11.9 billion. On the plus side, Vegas hotels are running at 95% occupancy (with all-time-record room rates and F&B sales) and conventioneers are pushing out low-value players to boot. Upcoming revenue drivers should include the completion of renovations this quarter in Atlantic City, the finish of the makeover of Hoosier Park Indianapolis next quarter, the opening of the Virginia temporary on May 15, a June debut of a Nebraska racino and the 2023 completion of $100 million in makeovers to Jubilee Tower at Horseshoe Las Vegas. Digitally, the company is benefiting from the Ohio sports-wagering rollout, which is positive-ROI already.
Management has big expectations for the long term, namely $5 billion in cash flow in 2025. That includes a $550 million contribution from the online sector. “While the long-term story is compelling, and has credibility, in our view, the current market is unlikely to be receptive to it, given the long-term nature and inherent execution and macroeconomic risks associated with it. That said, we do believe the risk-reward in CZR at present, is compelling, with the shares yielding 15.4% and 17.0% on our 2023 and 2024 free cash flow forecasts,” wrote Deutsche Bank analyst Carlo Santarelli.
Ergo, he (unlike Greff) kept a “Buy” rating on the stock: “Coupling this valuation with a Las Vegas outlook that remains sound, steady regional performance, which is soon to be augmented by portfolio expansion and the impact of ROI projects, operating leverage on revenue growth within the Digital segment, and the debt-to-equity conversion, we remain Buy rated.” He did lower his price target two dollars to $68/share, citing long-term-debt concerns. (Ahem, management.)
Credit Suisse boffin Barry Jonas addressed that very point, beginning, “Mgmt is exceedingly optimistic regarding an ‘uncertain’ macro outlook, seeing ‘significant strength’ across its assets with ‘extraordinary strength’ in Las Vegas.” He said Caesars’ long-range “roadmap could help assuage some investor fears” related to excessive leverage. From Jonas’ mouth to God’s ear.
Missouri casinos are excepted from the Show-Me State’s ban on smoking in public places—but St. Louis may make an exception. Striving for a better quality of life, the St. Louis County Council is weighing a ban on casino smokers. Passage isn’t certain, as the county is pretty smoker-heavy. But it’s worth trying. “Even if there are partial smoking restrictions, there’s no way to allow for smoke-free air,” testified Health Department Director Kanika Cunningham. “Even with the current ventilation systems, it can reduce the odor but it still does not reduce the level of hazardous exposure.” That’s a point that’s been made often before, frequently to no avail. Which is a shame.
The pushback was as predictable as it was scripted. “A total smoking ban that only applies to casinos in St. Louis County would place us at a considerable competitive disadvantage to nearby casinos in Missouri, risk hundreds of good-paying jobs, and substantially impact the tax revenue and significant economic activity our properties generate,” wailed Hollywood St. Louis General Manager Michael Jerlecki. He raised the phantom specter of players defecting to distant Missouri rivals. Yeah, like people are going to drive down to Cape Girardeau to gamble and smoke. Baton Rouge rebuffed the rest of Louisiana when it banned smoking in casinos. Let’s hope St. Louis County does the same.
If your favorite casino has a Ruth’s Chris Steakhouse, better patronize it in a hurry. The chain is being absorbed by the Antichrist of Italian food, Olive Garden. For $715 million, Darden Restaurants will get the prestigious steakhouse brand to add to its otherwise-motley assemblage of eateries. 150 top-earning Ruth’s Chris restaurants ($506 million in revenue last year) for 715 million clams? That’s a good deal for Darden. For diners, not so much, especially once tens of millions in “synergies” take hold.
The Press of Atlantic City continues its rapid death spiral. It is scrapping its apparent raison d’etre, its “At the Shore” section. Also gone is the free Atlantic City Weekly supplement. Explains our Boardwalk source, “This ‘tabloid’ as they called it was a comprehensive source for all things that happen in A.C.’s casinos, as well as other areas nearby. I looked at the last issue of ‘At The Shore’ and Ocean Casino, Bally’s, Golden Nugget, Resorts, and Borgata all had good-sized ads, plus some real estate agents, and a few restaurants.” Caesars Entertainment was a freeloader, taking out new ads but having its entertainment, lounge hours, restaurants, etc., listed in the activities subsection. The reduction in paper size is resulting in less advertising: “only Bally’s, Golden Nugget, and Resorts had good-sized ads. Ocean Casino had only a ‘help wanted’ ad. It looks like the Press has now ‘shot itself in both feet.'” Also gone are the crime-activity registers, creating the erroneous impression that nefarious activity in Atlantic City is gone. Mayor Marty Small (D) must be loving that.
Oppressed Utahns yearning for a gambling fix in Nevada may have had their prayers answered. Megabus is contracting with Salt Lake Express to expand its routes into Nevada across much of the West. Scheduled departures from Reno, Mesquite and Pahrump are already in the works, with many others to come. Salt Lake City denizens won’t be able to go straight to Vegas … but Reno will be on tap. No need to stop in Wendover anymore, eh?
If the St. Louis COUNTY smoking ban passes it would not apply to the Caesars/Horseshoe which is located in the CITY of St. Louis nor to the Boyd/Ameristar in St. Charles County.
I stand corrected—and appreciative.
Best source of crime news in Atlantic City as of today: http://www.breakingac.com