Caesars Entertainment, Inc. CZR is poised to benefit from regional destination properties and sports betting partnerships. Improvement in bookings for group and convention room nights bodes well. In the past six months, shares of the company have gained 3.9% against the industry’s fall of 8.5%. However, the coronavirus pandemic and weather-related disruptions remain concerns.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
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Factors Driving Growth
Caesars Entertainment continues to witness encouraging trends for its regional destination properties. During the second quarter, the company reported encouraging revenues, adjusted EBITDA and margin performance. During the quarter, net revenues in the segment came in at $1,490 million compared with $114 million reported in the year-ago quarter. The segment’s adjusted EBITDA came in at $602 million against $(8) million reported in the prior-year quarter. The segment’s adjusted EBITDA (excluding Lake Charles) margin came in 40.4%, expanding 1,280 basis points (bps) from 2019 levels. The upside was primarily driven by reductions in workforce and marketing costs, synergies from the purchasing power of the combined Caesars organization as well as limitations on certain lower margin food and beverage offerings.
Improvement in occupancy and bookings have been a driving factor. During second-quarter 2021, occupancy in Las Vegas reached 89%, with weekend occupancy reaching 99%. In the previous quarter, occupancy in Las Vegas came in at 63%, while weekend occupancy was attained at 85%. The upside was primarily backed by pent up demand and solid booking trends.
Going forward, the company is optimistic with respect to booking trends as it is witnessing increasing bookings for group and convention room nights for the second half of 2021.The company stated that group and convention revenues for the second half of 2021 are up 18% from 2019 levels. Moreover, 2022 revenues from group bookings are up 15% from 2019 levels. The bookings involve 176 events, 1.7 million room nights and $657 million of revenues. The company stated that 76% of the bookings are new. Nonetheless, it expects the return of the group as well as convention business and entertainment offerings to drive incremental demand in the Las Vegas market. The momentum is likely to continue for the remaining two quarters of 2021.
Caesars Entertainment continues to focus on partnerships to drive growth. To this end, the company expanded its partnership with the Arizona Diamondbacks and Caesars Superdome. Also, it is committed toward expanding relationships with leagues and professional sports teams. It has formed partnerships with the NBA, NHL and MLB. It is the official casino sponsor and sports betting partner of the NFL. The selection of such partnerships provides the company with exclusivity to access certain professional sports leagues and teams, sporting event facilities and sports television networks for tickets, suites and advertising, marketing as well as promotional and sponsorship opportunities.
The coronavirus pandemic is likely to have had a negative impact on the company’s business, financial condition and results of operations for the three months ended Jun 30, 2021. The company witnessed restrictions across a number of states including Nevada. The spread of the Delta variant is another concern. Given the uncertainty revolving around the crisis, chances of operational restrictions (imposed by governmental authorities), reimposing stay at home orders and travel restrictions cannot be ruled out.
The company has been witnessing constant disruptions associated with weather as well as construction. In August 2020, the regional segment was negatively impacted by Hurricane Laura, leading to severe damages to Isle of Capri Casino Hotel Lake Charles. Given the severity of the damage as well as the construction of a new land-based casino underway, the property is likely to remain closed till third-quarter 2022.
Zacks Rank & Key Picks
Caesars Entertainment currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space include Bluegreen Vacations Holding Corporation BVH, SeaWorld Entertainment, Inc. SEAS and RCI Hospitality Holdings, Inc. RICK. Bluegreen Vacations and SeaWorld Entertainment sport a Zacks Rank #1, while RCI Hospitality carries a Zacks Rank #2 (Buy).
Bluegreen Vacations and SeaWorld Entertainment’s earnings for 2021 are expected to surge 172% and 176.4%, respectively.
RCI Hospitality has a three-five year earnings per share growth rate of 12%.