Caesars Entertainment is facing an adjusted fourth-quarter outlook after a less-than-stellar performance on the Las Vegas Strip, primarily driven by the underwhelming turnout for the Las Vegas Grand Prix in November 2023. J.P. Morgan analyst Joseph Greff announced the revisions in a January 2 investor note, marking a slight decline in expectations for Caesars’ financial performance.
Cash-Flow Predictions Dialed Back
Greff lowered his Las Vegas Strip cash-flow forecast for Caesars from $499 million to $485 million, almost flat compared to the $489 million recorded in Q4 of 2023. The revision reflects softer gambling volumes and “relatively normal” table game hold percentages at 22%. Additionally, lower operational margins added to the subdued outlook.
The analyst cited the Las Vegas Grand Prix as a pivotal factor. Its turnout failed to match the excitement of its inaugural event, which had buoyed Strip revenues. Despite this, Greff hinted that December’s performance on the Strip might still have been “decent.”
Online Sports Betting Hits a Snag
Caesars Digital, the company’s online sports betting (OSB) arm, also saw a dip in expectations. Greff revised its Q4 return on investment (ROI) from $51 million to $26 million. According to the note, December favoured bettors, with popular teams winning their matches and covering spreads—a combination that typically challenges bookmakers’ profitability.
This bettor-friendly trend, Greff suggested, wasn’t unique to Caesars. He anticipates similar themes will surface during upcoming earnings calls from other OSB operators.
Regional Casinos Shine Amid Broader Challenges
While Strip and digital revenues showed cracks, Caesars’ regional operations offered some relief. Two standout performers were the company’s new casino in Danville, Virginia, and the rebranded Caesars New Orleans. Both properties reported robust activity, bolstering confidence in the projected $408 million cash flow for regional properties.
The regional forecast was only slightly trimmed, with Greff reducing his original estimate by $10 million, down to $1.82 billion. Overall, these properties provided a welcome counterbalance to the challenges on the Strip and in digital markets.
Financial Adjustments Reflect Changing Landscape
Looking beyond Q4, Caesars is grappling with mixed financial adjustments:
- Corporate Expenses: Raised by $20 million, reaching $190 million for the upcoming year.
- Interest Expenses: Projected to be $756 million, a notable reduction from the earlier $800 million estimate.
- Debt Levels: Expected to drop from 4.9 times cash flow in December 2023 to 3.9 times by the close of 2025, driven by strategic asset sales.
The company’s digital ROI prediction of $354 million remained untouched, a sign of cautious optimism for its longer-term digital strategy.
Shares and Market Sentiment
Caesars’ share price reflected investor hesitation, trading at $33.42 at the time of Greff’s report. Alongside his lowered projections, Greff adjusted his price target for the stock, trimming it from $58 to $57. While this represents a minor revision, it signals tempered expectations for a stock still facing headwinds.
Despite these challenges, Greff reiterated a positive forecast for the Strip, maintaining a projection of over $1.86 billion in cash flow. This optimism stems from Caesars’ strong brand presence and continued demand for its Las Vegas offerings.
- Las Vegas Grand Prix: Lower turnout impacted Strip revenues.
- Online Sports Betting: ROI reduced due to bettor-friendly outcomes in December.
- Regional Properties: New locations in Virginia and Louisiana provided much-needed stability.
- Debt Reduction: Asset sales expected to decrease debt ratios by the end of 2025.
As Caesars moves forward, it faces a landscape of mixed fortunes. Strong regional performance and asset sales may offset some of the challenges posed by a subdued Grand Prix impact and online betting hurdles. Investors, however, appear to remain cautious, keeping a close eye on the company’s evolving strategy.
