How Low Will Caesars Entertainment Go?

Shares of Caesars Entertainment (Nasdaq: CZR  ) hit a 52-week low yesterday. Let's look at how it got here and whether clouds are ahead.

How it got here
With the economy struggling, it should come as no surprise that gaming stocks are having a rough go of it in recent months. The hardest hit has been Caesars Entertainment, which has fallen 42% since reaching the public markets.

The explanation is simple. Caesars is extremely leveraged by its $20 billion debt load and it needs the economy, and by extension U.S. gaming, to grow quickly to become a winner for investors. Since neither is happening at anything more than a snail's pace, the stock continues to fall.

As you can see below, the stock has lagged competitors since coming public, but all gaming stocks are down since then. The three top performers -- Melco Crown (Nasdaq: MPEL  ) , Las Vegas Sands (NYSE: LVS  ) , and Wynn Resorts (Nasdaq: WYNN  ) -- all get most of their revenue from Asia, where gaming is growing quickly. MGM Resorts (NYSE: MGM  ) has struggled as well in the same U.S. markets as Caesars.

CZR Chart

CZR data by YCharts

The sheer debt load and anemic growth rate should be enough to scare any investor off, or at least to a better gaming stock. Based on the data below, any of the other four competitors would be a better buy than Caesars based on growth and debt/market equity.

Company

Market Cap

Total Debt

EBITDA (TTM)

Quarterly Revenue Growth

Caesars Entertainment $1.12 billion $20.3 billion $1.9 billion 4.3%
Las Vegas Sands $30.2 billion $9.9 billion $3.5 billion 30.8%
MGM Resorts $4.8 billion $13.4 billion $1.7 billion 54%*
Wynn Resorts $10.8 billion $5.5 billion $1.4 billion 4.2%
Melco Crown $5.6 billion $2.3 billion $910 million 27.3%

Source: Yahoo! Finance. *MGM Resorts' revenue growth includes MGM China.

What's next?
So has Caesars finally fallen so far that the odds are in our favor? Management has pushed out debt maturities so bankruptcy isn't a worry short-term, and for some reason debtors are more than willing to give the company cash anytime it asks. So I don't see the stock going to zero, but I don't see it outperforming rivals and it will likely keep falling if the economy continues to struggle.

The one thing that could change that is an online gaming bill in the U.S. The market potential is huge and Caesars would have a leg up on the competition if it passed. Outside of this happening, I think it's a long road to ruin for Caesars.

The CAPS community is also bearish, giving the stock a one-star rating out of five. The stock only has 10 outperform calls to 51 underperform calls right now.

Interested in reading more about Caesars Entertainment? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Also, if you're interested in learning about some more emerging-market growth opportunities, make sure to check out our special free report "3 American Companies Set to Dominate the World."

Fool contributor Travis Hoium manages an account that owns shares of Melco Crown and Wynn Resorts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (4) | Recommend This Article (3)

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 July 13, 2012, at 12:16 PM, cp757 wrote:

    Travis you usually put in Net Debt. I have always liked that when you did that because it shows what is really going on . A CEO decides to have the debt because he can borrow at low rates and still have cash in the bank. I just wanted to point out LVS has Net Debt of 5.8 billion and in 2012 they will have 4.9 billion in cash in the bank and 2013 they will have 6.1 billion in cash in the bank and in 2014 they will have 8.5 billion in cash in the bank. All this time they will pay a 2.3% dividend and pay off debt. By 2014

    CZR will still have 20 billion in debt with low or no growth and low margins if we don't have a slow down in the US market

    WYNN will have 9 billion in debt because they will build in Cotai .

    MGM will still have 13 billion in debt and MPEL will have 2 billion because they are using cash to build in Manila.

    LVS could start to add debt again as they build an Integrated Resort in Europe or Japan but with 4 billion in EBITDA in 2012 and 5 to 6 billion in EBITDA in 2013 I don't think that will be a problem. None of the other operators will have growth and EBITDA like LVS. Just thought I would point that out.

  • Report this Comment On July 14, 2012, at 9:15 AM, cp757 wrote:

    I forgot to post the Link :

    The figures for Net Debt are on page 24.

    The figures for Cash Balance are on page 27

    http://files.shareholder.com/downloads/ABEA-242MDE/197017392...

  • Report this Comment On July 14, 2012, at 8:10 PM, neamakri wrote:

    52-week low?

    Even your graph shows less than 6 months. Where is the rest of the data?

  • Report this Comment On July 15, 2012, at 9:24 PM, MorganMan wrote:

    Here is why so many people will never be rich.

    Firstly, this article talks about economic headlines that come out as factual math to base decisions off of. Shame on you for this. We have 1 months Vegas numbers to show things have dropped a little. That is the only recent factual data you can claim.

    Second, John Paulson pointed out at the Ira Sohn conference that CZR's internet operations are worth atleast $8 a share right now. And lest we forget that there is $17 billion in assets that Caesers owns. So, to your question of how low can the stock go? Can I move on from this? John Paulson also discussed an extra billion in EBITDA in the next few years from operations if not more.

    Thirdly, Internet Poker has been legalized at the state level. This article in it's skewed perspective talks about internet poker as a "maybe." Nevada will start taking Internet Poker bets in late 2012 or early 2013. Delaware just passed a bill and will presumably follow suit soon. This Internet Poker action at the state level has forced Congress to bring up the issue again to a potential vote by years end as Congress will have less authority as more states get going on this revenue stream.

    The fact that Caesers would dominate everybody else in Internet Poker land and based on everything I laid out only a "fool" would dismiss this opportunity so quickly. How ironic that we are on a Motley Fool article.

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