Caesars Entertainment (NASDAQ: CZR) emerged as one of the most heavily shorted stocks in the S&P 500 throughout September, as indicated by new data. Caesars Palace Las Vegas continues to draw visitors, yet short interest in the stock remains significantly high despite a recent surge. By the end of last month, short interest in Caesars as a percentage of the stock’s total float was 7.04%, placing it 20th among all members of the benchmark domestic equity gauge. The Harrah’s operator stands out as the only gaming name among the most shorted S&P 500 equities, although others with ties to Las Vegas, such as Southwest Airlines (NYSE: LUV), also appear.
Bearish traders are treading a precarious path with Caesars, as the stock has increased almost 11% over the past month and more than 22% over the past 90 days. Regardless of the industry, heavily shorted stocks can sharply change directions, forcing bearish traders to cover their positions, which further fuels a rally. While traders aren’t required to disclose their reasons for shorting specific stocks, the elevated bearish stance on Caesars might reflect market participants betting on a downturn in consumer spending or anticipating a decline in visitation to Las Vegas Strip and regional casinos in the near term. Moreover, traders shorting Caesars could be using those positions as hedges against bullish bets on other consumer discretionary stocks.
The recent performance of Caesars stock has been difficult for those shorting the shares. The stock’s resurgence is supported by solid fundamentals. For instance, Caesars is one of the most indebted gaming companies, and therefore benefits positively from lower interest rates. The Federal Reserve recently cut borrowing costs by 50 basis points. Earlier this month, Caesars announced a surprising $500 million share repurchase program and sold $1 billion in bonds to eliminate near-term maturities.
Adding to Caesars’ rally, management has indicated there’s been no significant pullback in consumer expenditures either in Las Vegas or in the regional markets where it operates. Additionally, there’s speculation that the operator might prioritize asset sales in 2025 as a means to raise cash, potentially reducing debt and returning more capital to shareholders. Such headlines could further boost the stock, increasing risk for short sellers.
Analysts are also optimistic about Caesars. Wall Street is generally positive on the casino operator, with 14 out of 18 analysts covering the stock rating it as “buy” or “strong buy.” Their consensus price target suggests almost a 21% upside from current levels. Riley analyst David Bain supports the positive outlook on Caesars’ debt reduction efforts and increasing profitability in its digital unit.
“CZR’s confirmed significant potential value creation from lower interest rates combined with lower forward capex, additional cash contributions from the sale of non-core assets, and digital and Las Vegas growth next year,” wrote Bain in a recent note. “Debt paydown remains CZR’s top priority, though it made clear that share repurchases remain compelling at current market prices/valuation.”