Will Caesars Earnings Ever Bounce Back?

Caesars Entertainment (NASDAQ: CZR  ) will release its quarterly report on Monday and, as everyone knows, when it comes to gambling, the casino always wins. Yet, when you look at Caesars earnings, you'll start to doubt that old adage, as you'll find nothing but a sea of red ink as far into the future as the eyes of analysts can see.

Caesars is one of the best-known names in U.S. gaming, with a core presence in Las Vegas as well as other properties scattered around the country. Yet, by largely missing out on the international gaming phenomenon, Caesars has greatly limited its growth potential compared to what its more-cosmopolitan peers have seen. Let's take an early look at what's been happening with Caesars Entertainment over the past quarter, and what we're likely to see in its quarterly report.

Stats on Caesars Entertainment

Analyst EPS Estimate

($1.57)

Year-Ago EPS

($1.93)

Revenue Estimate

$2.18 billion

Change From Year-Ago Revenue

0.6%

Earnings Beats in Past 4 Quarters

0

Source: Yahoo! Finance.

Will Caesars ever make money again?
Analysts have only gotten more pessimistic about the prospects for Caesars' earnings in recent months, widening their loss estimates by $0.10 per share for the June quarter, and by four times that amount for the full 2013 and 2014 years. The stock has held up reasonably well, but has still given back about 4% since late April.

Caesars has found itself in an awkward position. With substantial debt, the company has had limited financial flexibility to bolster its growth. Moreover, it has a large disadvantage compared to rival MGM Resorts (NYSE: MGM  ) in that Caesars has no casino presence in Macau or other high-growth gaming areas internationally. Last year, it abandoned its plans for a Macau casino after the government there declined to issue licensees for new companies to enter the market. Macau has become a much more important part of the business for giants Las Vegas Sands (NYSE: LVS  ) and Wynn Resorts (NASDAQ: WYNN  ) than Las Vegas, and being essentially locked out leaves Caesars floundering for direction.

But recognizing the writing on the wall, Caesars made a big strategic move in late April, announcing that it would spin off part of its higher-growth assets, including its online-gaming unit, into a new entity called Caesars Growth Partners. The entity would invite private-equity funds Apollo Management and TPG Capital to contribute $250 million each to capitalize the company. The general plan was approved by gaming regulators earlier this month and, under an SEC filing in July, Caesars investors would be offered as much as 125.4 million shares of stock in a third entity, Caesars Acquisition, for $9.43 each, whose sole purpose would be to own shareholders' joint stake in the Growth Partners unit. As complicated as the scheme sounds, the gist of it is to give investors a choice between higher-risk, arguably higher-reward assets and Caesars' traditional business.

Caesars also made a play to solidify its hold on its World Series of Poker brand, buying the WSOP app from Electronic Arts last month. If its online poker initiative goes forward, then having the rights to the WSOP could be an essential part of distinguishing its poker offering from the many competitors that are likely to enter the space.

In the Caesars earnings report, look for a better explanation of how the split of the company will enhance shareholder value. Given the fact that shareholders will have to invest more capital in order to obtain their shares of the new company rather than having them distributed in a traditional spin-off, it's far from clear whether shareholders will benefit from the offering, or whether Apollo and TPG will end up the big winners.

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