In Caesars Entertainment's (NASDAQ:CZR) first full quarter of operations since it reorganized its business, the company showed some promising results. It generated $518 million in adjusted EBITDAR (a proxy for cash flow from resorts), and also announced some non-gaming projects that will expand its reach around the world.
After being in flux since its IPO in 2012, Caesars Entertainment finally looks like it is achieving a level of stability it has never had in its time as a public company.
Where Caesars Entertainment stands today
Given the spinoff of Caesars Entertainment's REIT VICI Properties (NYSE:VICI) and the consolidation of formerly bankrupt subsidiary CEOC LLC, most of the company's year-over-year comparisons for Q1 are pretty meaningless. To compensate, the numbers below use same-store comparisons to show how the business is doing.
Overall, Caesars Entertainment's Q1 revenue was $1.97 billion, its net loss was $34 million, and its adjusted property EBITDAR was $518 million. Restructuring and support expenses of $184 million took a big bite out of results -- without them, the company would likely have been profitable in the quarter.
Same-store results offer a slightly better indication of how Caesars is performing. By that measure, revenue fell 2% versus a year ago and adjusted EBITDAR dropped 3.4%. But even here, there are valid caveats: Management said the weather-related disruptions, like the flood that temporarily closed Horseshoe Southern Indiana, hurt revenue by about $20 million and EBITDAR by about $31 million.
In Las Vegas, which supplies about 40% of Caesars Entertainment's revenue, total revenue was down 2.6% and adjusted EBITDAR fell 5.3%. That's not great, particularly in light of the fact that gaming revenue overall in Las Vegas rose 3.3% to $1.73 billion in Q1. But that citywide gain was driven by a 32% jump in revenue from baccarat -- a game more often played in high-end casinos outside of the Caesars family. This could explain why Caesars' numbers went in the opposite direction from those of Las Vegas broadly.
One interesting note is that Caesars said that revenue per available room at its hotels fell by 1%, but competitors averaged a 2.5% drop. Caesars' locations may not be luring in as many high-rolling baccarat players, but they're still popular among those coming to Las Vegas to eat, shop, and see the sights.
Caesars can finally exploit growth opportunities
Now that it's out from under the bankruptcy of CEOC, Caesars Entertainment has the ability to pursue growth opportunities. During the past two months, it announced plans for its first non-gaming resorts: a dual-property in the United Arab Emirates, Caesars Palace Bluewaters Dubai and Caesars Bluewaters Dubai; and a Caesars Palace development in Cabo, Mexico. Each will operate under a licensing agreement with local developers, a low-risk option that the company could replicate around the world.
In Northern California, Caesars struck an agreement with the Buena Vista Indian tribe to provide the Harrah's brand and consulting services for a new casino in Ione, California. The casino will be built and operated by the Buena Vista tribe, so this is another low-risk growth opportunity for Caesars Entertainment.
Caesars Entertainment's stock may finally be worth buying again
Caesars Entertainment is still getting on its feet in the wake of the restructuring it completed late in 2017, and management expects performance to improve as the year goes on. The adjusted EBITDAR guidance range for 2018 is $2.37 billion to $2.42 billion -- significantly higher than Q1's $2.07 billion annualized rate.
Management also said they expect revenue per available room to increase by 4% to 6%.
From a valuation perspective, Caesars Entertainment is starting to look a little better as well. Its net debt is just $5.46 billion after pulling out $1 billion of convertible debt that's in-the-money (meaning it would convert to stock at a discount to today's stock price). That's a manageable debt load considering the $2.395 billion mid-point in adjusted EBITDAR guidance.
Caesars' market cap is $10.1 billion when you include the converted debt, and there are $5.82 billion worth of capitalized lease payments that we should include in any calculation of its enterprise value. That leaves an EV to EBITDAR ratio of 8.9 times, a reasonable value given its steady core business and growth opportunities. For the first time since it came public, I think Caesars Entertainment is a stock worth buying and holding long term.