One of our favorite investment banks, JP Morgan, has initiated coverage of Caesars Entertainment, providing us with further transparency of the company’s performance. The price target is a lowly $16/share, which presumably reflects the company’s recent, shall we say, financial 
difficulties. It certainly is not reflective of the company’s brand equity (great) and asset portfolio (very strong). Analyst Daniel Politzer listed an array of positive factors, starting with Las Vegas Strip capex maintenance “that should lift ADR and improve customer mix.” He added that “stable fundamentals and domestic gambling-consumer strength bode well for the hub-and-spoke Total Rewards system. Margins at outlying properties are expected to improve thanks to “more efficient marketing/promotional spend.” Ten billion dollars’ worth of real estate could be sold to gaming REITs (read: Vici Properties). Other positive factors included sports betting, which is Caesars is well-positioned to exploit (along with Penn National Gaming and Boyd Gaming) due to its geographic diversity.
Although 19 Caesars casinos are physically owned by Vici, that too is a plus because Caesars is getting off light in the rent department: an average of $38 million in rent per casino per year. Even the company’s heavy exposure to the Las Vegas Strip is rated a plus, though one wonders if that might change in the event of a Culinary Union strike. Half of Caesars’ cash flow stems from the Strip, 38% from regional 
properties, according to Politzer. “We have a favorable view of the LV Strip both in the near term (CZR sees 2018E RevPAR growth of 4-6%, improving international play, and record 3Q18 group business), and long term, given favorable industry supply/demand dynamics: strong convention/group demand, increased sports/ entertainment offerings, and no new rooms until 2021,” he wrote.
Politzer expects Caesars to “conservatively” lift room rates by $15 to $25, on the strength of four years’ worth of renovations. He also thinks it could monetize seven of its Strip casinos through asset sales to Vici. Although he did not dwell on the thought, Politzer excepted the company’s three Atlantic City casinos from the ones that are “well positioned” looking ahead. Let the coverage commence!
* It’s a crying shame that, when it comes to sexual harassment in the workplace, the casino industry is generally somewhere back in the 20th century, but it doesn’t have to be this way. For instance, why did Wynn Resorts lack a maternity-leave policy until CEO Matt Maddox recently incepted one? Anyway, the American Gaming Association is taking the lead on the sexual-misconduct front. It is adding a five-part sexual-harassment training program to its Casino Essentials syllabus. Is there anything we need to add? Yes: Bravo!
