CZR would be trading in single digits if the float were larger.
Caesars Looks Like a Risky Bet
By ANDREW BARY
BARRON'S INSIGHT
FEBRUARY 19, 201
Caesars Entertainment doesn't have a lot going for it given its heavy losses and onerous debt.
The company did stage a successful initial public offering recently as investors focused on the potential benefits to the company from the legalization of online poker in the U.S. Caesars went public at $9 a share and quickly rose to above $15 before settling around $12.50. The stock (CZR) isn't liquid because the company sold only 1.8 million shares, a little over 1% of its shares outstanding.
Given the risks, investors might want to steer clear of Caesars. Better gambling alternatives are regional companies like Ameristar Casinos (ASCA) and Pinnacle Entertainment (PNK). Wynn Resorts (WYNN) and Las Vegas Sands (LVS) offer a play on the world's gambling capital, Macau, where both run very profitable casino/hotels.
There are rising hopes that some big states may legalize online poker during the next year or that Congress will move to do so nationally. Caesars has been preparing for that and it has one of the leading power brands in the World Series of Poker. (Many Americans used to play poker online via offshore websites, but Congress cracked down on that practice in 2006.)
It is hard to value Caesars based on traditional financial measures because it has consistently lost money since its 2008 leveraged buyout by a group led by Apollo Global Management and TPG Capital. It carries $22.5 billion of debt and burns cash. The company operates 52 casinos in 12 states and seven countries. It is in Las Vegas and Atlantic City, but not Macau.
Online poker is the investor focus at Caesars because the company has put that nascent business into a separate unit that doesn't have any debt, giving equity holders the benefit from any future profits.
Some analysts, like Harry Curtis of Nomura Securities, think many states, including California, New York, Illinois and New Jersey, may legalize online betting in the next year, following a favorable ruling late last year by the U.S. Justice Department that has cleared away key obstacles. State action could prompt Congress to legalize online poker nationally.
It is no sure bet that legalized online poker will occur. And even if it does, Caesars needs a lot to break right for its stock to score.
— Andrew Bary is an associate editor of Barron's.
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