Hail Caesars! But 'Et Tu, Debt?'

Caesars Entertainment (Nasdaq: CZR  ) , formerly known as Harrah's Entertainment, has rejoined the public market after just over five years in the hands of private equity.

In trading today, the stock has already risen 79%, making it a wildly successful IPO, depending on how you judge such things.

One IPO I wouldn't buy
I've identified this as a terrible potential IPO in the past and now that it's here the details look even worse. Only 1.8 million shares were offered to the market at $9 per share in this IPO and right now it looks like there's a lot more demand than supply, something that might soon change. Twenty-two million shares will soon hit the market as investors look to cash out on the positions that were built while the company was in private hands.

Financially, the picture gets even worse for Caesars. At a time when competitors Las Vegas Sands (NYSE: LVS  ) , Melco Crown (Nasdaq: MPEL  ) , and Wynn Resorts (Nasdaq: WYNN  ) are stacking cash in Macau, Caesars is posting big losses in the U.S.

In the most recent quarter, the company reported a slight decline in revenue, to $2.25 billion, and a $164 million loss. The loss is about the same size as a year ago, showing little progress in improving profitability. As a comparison, Las Vegas Sands had a net income of $320.1 million last quarter and Wynn made $258.3 million in the quarter.

The problem is the company's massive debt load, not dissimilar to the other Strip giant, MGM Resorts (NYSE: MGM  ) . In the third quarter, Caesars reported $198.2 million in operating profit but spent $450.3 million on interest expense. The company would have to more than double operating profit to break even or pay down billions of dollars of debt -- $19.6 billion, as of September 30.

Buyer beware
A quick profit today may be great for investors buying the IPO, but it isn't a good bet for retail investors. Caesars has shown zero ability to make a profit and has a level of debt that should make investors run for the exits. I'm confident enough that I'm making an underperform call on My CAPS.

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Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (4) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 08, 2012, at 8:08 PM, TMFUltraLong wrote:

    Travis,

    Title of the week... hands down =)

    I was thinking the same thing when I saw shares up 70-something percent this morning. What *are* investors thinking? Terrible investment as far as I'm concerned.

    TMFUltraLong

  • Report this Comment On February 08, 2012, at 8:11 PM, TMFFlushDraw wrote:

    @TMFUltraLong

    I have to give credit where credit is due. Dan C. came up with the initial headline idea and Austin finished it off. I can't take any credit at all.

    Travis

  • Report this Comment On February 08, 2012, at 9:25 PM, cp757 wrote:

    Travis you are right on the money but I don't see any way to wave off this train wreck. Any investor should know this is a bankrupt company and yet they are buying shares because they go up.At a time when they should be selling assets they are playing games. With 22 billion in debt Caesars is seeking to raise $1.25 billion in high yield bonds. Buying shares of CZR is like buying the anchor on the Titanic.This is an exit plan for the insiders not an investment for the future.

  • Report this Comment On February 08, 2012, at 10:03 PM, simplicius wrote:

    Yeah but...

    I was actually able to participate in this IPO through my Broker (Fidelity), and I am definitely a retail investor. I was only allocated 20% of the shares that I requested, but I am very happy with the result. I do need to hold on to CZR at least until February 23 according to Fidelity Policy (if I sell sooner I could be blacklisted from participating in any future IPO's) and I'm hoping to sell then. If I can get $10.80 or more for my shares, I'll be thrilled.

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