Caesars Entertainment Shares Rally as CEO Reveals Debt Reduction Strategy

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In a resurgence of optimism on Wall Street, shares of Caesars Entertainment experienced a rally on Wednesday, bouncing back from a slump instigated by a tepid post-earnings report on late Tuesday. The market responded positively to the casino powerhouse’s renewed commitment to diminishing debt, which seems to be one of the main catalysts behind the stock’s steady recovery.

Tom Reeg, CEO of Caesars, has been strategically deploying the company’s excessive free cash flow to hold back liabilities and enhance earnings before interest, taxes, depreciation and amortization (EBITDA), effectively diminishing leverage ratios. Impressively, the leader has spotted multiple alternative ways to reduce debt, encompassing the sales of assets. In a 2021 interview with CNBC, he confirmed that he was very much open to the idea.

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Reeg explained that there were numerous assets that led to minimal or zero cash flow, deemed as non-essential to the business or non-operating casinos, potentially ripe for conversion into capital at alluring rates. He further added, without promising too much for the future, that the market shouldn’t be caught off guard if such proceedings begin to surface in 2024, adding that their debt reduction strategy isn’t solely confined to free cash flow.

As the first quarter ended, the operator of Harrah’s had $12.436 billion in outstanding liabilities, slightly less than $12.439 billion at the end of 2023. At the close of this first quarter, Caesars boasted $726 million in unassigned cash, not factoring in $139 million in restricted cash.

Reeg remained tight-lipped about the identity of casinos Caesars might consider selling but did hint at the forthcoming divestiture of certain non-essential assets. His comments arrived at a time when market observers have been concerned about the Federal Reserve’s delay in cutting interest rates, which could potentially hamper consolidation activity in 2024.

Without detailing, Reeg left many to wonder what gaming venues the company might deem non-essential for future disposal. The Nevada-based pacesetter manages over 50 casino hotels, including properties operated in partnership with Tribes, distributed across 17 states and Canada.

Caesars fell short of Wall Street’s expected earnings and revenue in the first quarter, which caused some analysts to cool off their enthusiasm for the stock. Indeed, no fewer than six analysts adjusted their price targets on the Horseshoe operator. Among these was Macquarie analyst Chad Beynon, who lessened his price forecast from $64 to $58 while maintaining an “outperform” rating on the shares. Beynon expressed optimism for the company’s digital sector and predicted that this year would be an “inflection point” for Caesars, adding that the casino giant could yield as much as $5.40 a share in free cash flow next year.

Beynon wrote, “While some may remain wary due to leverage and growth in Vegas/Regional, we believe that Caesars’ foothold in Vegas is formidable. We expect the narrative to remain focused on the company’s capacity to enhance Digital share and profits. Overall, we assert that Caesars boasts an appealing risk/reward digital profile given its extensive database, reduced marketing/promo intensity, and ever-improving tech.”