Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Where Will Caesars Entertainment Be in 5 Years?

By Travis Hoium - Dec 9, 2020 at 8:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If all goes well, the next five years might be a little less exciting than the last five years for Caesars shareholders.

The last decade has been a wild ride for Caesars Entertainment ( CZR ) and its shareholders. The company went public, made some very controversial transactions that left its largest operating unit bankrupt, and eventually merged with Eldorado Resorts to make one of the biggest gambling companies in the world

Looking into our crystal ball, there are a few things we can see ahead for Caesars Entertainment. They may be a little less exciting than the last few years, but that might just be good news for investors. 

Las Vegas skyline at dusk.

Image source: Getty Images.

More of the same lately

Las Vegas and Caesars' regional casinos aren't likely to change much in the next five years. The company may trim a casino here or there, as it recently did with its sale of Belle of Baton Rouge casino on Dec. 1 for an undisclosed amount. Or it might add another. But there aren't many major acquisitions or development projects to be had right now. And coming out of the pandemic, highly leveraged companies like Caesars are going to be eager to focus on optimizing operations at existing resorts. 

There also aren't any big development opportunities in the lucrative Asian market on the horizon. Macao and Singapore are at their limit for operators and Caesars has dropped out of the bidding for a Japanese casino. Those are the three most attractive markets in the region and Caesars has been shut out. 

Online gambling could be big business

Where I do see an opportunity for growth is in online gambling. Caesars recently agreed to buy William Hill, the company's partner for online gambling in the U.S. William Hill will bring the software and iGaming expertise that Caesars didn't have in-house and this could be a big business long-term. 

Between 2020 and 2027, Grand View Research expects the global online gambling market to grow at 11.5% annually and reach $127.3 billion by 2027. As a market leader, Caesars and William Hill could be a big player in that market. And I would expect over the next five years that Caesars will grow significantly in online gambling. 

Why Caesars may not be worth the risk

There's certainly upside potential for physical casinos and online gambling over the next five years. But consider that Caesars doesn't have much to fall back on if tough times continue and may have squeezed all the value there is from the company's assets. 

Caesars has sold most of its real estate to a real estate investment trust called VICI Properties ( VICI -0.73% ), so there's no more value to be extracted there. Likewise, there aren't billions of dollars of real estate weighing down the balance sheet like there was a decade ago. 

Meanwhile, Caesars has $16.2 billion of debt on the balance sheet and reported just $463 million of adjusted EBITDA (a proxy for cash flow) in the third quarter of 2020. That's a high debt load for the cash flow and will require years of recovery from the pandemic to get back to any level of normal leverage. It's this issue that will keep me away from investing in Caesars' stock right now, despite the growth potential I see in gambling online. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Caesars Entertainment Corporation Stock Quote
Caesars Entertainment Corporation
CZR
VICI Properties Inc. Stock Quote
VICI Properties Inc.
VICI
$27.21 (-0.73%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
640%
 
S&P 500 Returns
139%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/03/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.