Caesars Poised to Miss Q2 Earnings Forecasts, Says Analyst

Caesars is likely to miss Q2 estimates due to weakness on the Las Vegas Strip.

Third quarter might not be much better

Analyst also lowers regional casino estimates, but do to one-off issues

A Look at Caesars Entertainment’s Second-Quarter Results

Caesars Entertainment (NASDAQ: CZR) delivers second-quarter results after the close of US markets on Tuesday, July 29, and analysts are preparing investors not to expect much from that report.

Caesars Palace on the Las Vegas Strip. The company’s Q2 results are unlikely to include positive fireworks. (Image: Shutterstock)

Las Vegas Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent Costs (EBITDAR) for Second and Third Quarters

Count J.P. Morgan’s Daniel Politzer as part of that group. In a new report to clients, the analyst notes Caesars’ Las Vegas earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) for the second and third quarters could come in below expectations.

He sees the gaming company delivering Las Vegas EBITDAR of $479 million for the June quarter, slightly below the Wall Street consensus of $482 million.

Adjusted EBITDAR Forecast for Second Quarter

For the current quarter, Politzer pared his EBITDAR forecast on the Flamingo operator to $430 million from $459 million. Those moves jibe with what’s been increasingly gloomy sentiment pertaining to Las Vegas Strip gross gaming revenue (GGR) and visitation data.

Las Vegas Gross Gaming Revenue and Visitations

Downbeat Sin City views are highly pertinent to Caesars investors because the company is the second-largest Strip operator.

Analyst Expectations for Caesars Entertainment’s Second-Quarter Results

For the June quarter, analysts expect the Harrah’s operator to report earnings per share of five cents on the basis of generally accepted accounting principles (GAAP). Revenue is forecast to be $2.86 billion, but over the past 90 days, nine analysts have pared those projections, according to Seeking Alpha data.

Caesars’ Longer-Ranging Vegas Views Matter

Investors have priced in tepid visitation at the hands of the ongoing trade calamity with Canada and Mexico, as well as customers increasingly feeling as though Las Vegas is offering less value, as factors that could weigh on casino operators’ second-quarter results.

The Forward Outlook for Las Vegas

If anything, Caesars has been granted some leeway as the stock is up 5% over the past month and 12% over the past 90 days.

For that momentum to continue, investors may need to exercise patience with shares of Las Vegas-exposed operators, and that requires the companies giving market participants reason to do so.

Caesars Free Cash Flow

He adds that Caesars’ free cash flow is impressive and the stock is discounted. The analyst has a $48 price target on the name, implying upside of 60% from where it trades as of this writing.

A $48 Price Target

We like Caesars for its material net free cash flow generation (50%+ of market cap) through 2027, which should accrete to shareholders via debt reduction and/or capital returns; heavily discounted valuation – even ascribing zero value to Caesar’s OpCo assets, we arrive at a fair value in the mid-$40s.

Regional Casinos Could Pick Up Some Slack

Caesars has one of the largest portfolios of regional casinos, confirming its non-Las Vegas venues figure prominently in the broader investment thesis.

A Look at Caesars’ Regional Casino Estimates

Politzer lowered his second-quarter EBITDAR forecast on Caesars’ regional venues to $448 million from $463 million, but that was driven by temporary issues at properties in Atlantic City, Lake Tahoe, and Louisiana.

Points of Interest for the Upcoming Earnings Call

The J.P. Morgan analyst speculates that on Caesars’ upcoming earnings call, points of interest regarding the regional portfolio are likely to include consumer health, margins, and the cadence of promotional spending aimed at generating more foot traffic.

Conclusion

In conclusion, the outlook for Caesars Entertainment’s second-quarter results is less than positive. With Las Vegas Strip gross gaming revenue and visitation data expected to weigh on the company’s performance, investors will need to exercise patience with shares of Las Vegas-exposed operators.