Caesars Entertainment (CZR 0.54%) posted a record third quarter, while also stating that October was the "strongest month ever" for its Las Vegas business.
With the global sports betting market set to grow more than 10% per year through 2029, the leading players -- and their investors -- stand to benefit significantly. Let's take a closer look at Caesars' Q3 results and whether this casino stock is a buy.
Caesars' record Q3 performance
Caesars set a new quarterly record of more than $1 billion for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) earnings in Q3, a 15% increase year over year. Observing a return to "normal seasonality" in Q3, Caesars relied on all aspects of its Las Vegas segment for the record performance.
Occupancy in the Las Vegas segment reached 94% in Q3, driven largely by strong bookings in July and September. As a result, hotel revenue and profit each set new records in the third quarter, alongside gaming revenue which also had an all-time high quarter.
Caesars Digital, which comprises Caesars Entertainment's digital sportsbook and online casino, enjoyed a 121% rise in revenue -- $212 million versus last year's Q3 revenue of $96 million. Although the digital segment ultimately endured a quarterly loss of $38 million, it was a vast improvement over last year's third-quarter digital loss of $164 million.
Caesars CEO Tom Reeg cited "improved operating efficiencies" as the main catalyst for the smaller-than-expected loss in digital. Overall, Caesars' Q3 earnings per share (EPS) of $0.24 surpassed analysts' expectations of $0.15 per share, while also marking a substantial improvement over last year's Q3 loss of $1.08 per share.
High operating expenses
Extraordinarily high utility expenses in the third quarter impacted profitability, dropping margins significantly. While the company's ideal Q3 profit margin should have ranged from 48% to 49%, the actual number was around 35%.
Aside from utilities, construction interruptions also contributed to narrowed margins. As the casino completed a multimillion-dollar main entrance renovation for Caesars Palace, disruptions caused a slowdown in traffic and impacted Q3 performance. Now complete, the new Caesars Palace entrance includes refreshed gaming areas, a new lobby bar, and a crystal chandelier that weighs roughly 3,200 pounds.
Image source: Caesars Entertainment.
Looking ahead
During the company's Q3 earnings call, Reeg commented, "October was the strongest month in the history of Las Vegas for Caesars." Caesars posted over $200 million in adjusted earnings for the month, up double digits year over year. So far, so good for the fourth quarter.
A key insight from the Q3 conference call was Reeg's confidence surrounding Caesars Sportsbook. October proved to be a pivotal month for Caesars digital, which saw adjusted earnings turn from negative to positive. Considering that the change happened 12 months before the company expected it to, Caesars' management has been "extremely pleased" with the surprise.
Another potential tailwind for Caesars is international travel, which has shown continued recovery. With plenty of upcoming entertainment and sporting events in Sin City over the next 18 months, Caesars anticipates a wave of international tourism. The company feels optimistic about its 2023 bookings and occupancy.
Is Caesars Entertainment stock a buy?
Caesars stock currently trades roughly 60% down from its October 2021 highs -- when the company was preparing to post a net loss of $233 for the third quarter. In comparison, the company enjoyed a profit of $52 million last quarter.
Despite the positive momentum, Caesars stock remains in a major dip. Given all the information cited above, it's likely that the stock's performance isn't in tune with the company's performance. If Caesars Entertainment continues on its current trajectory, investors should see some recovery to the upside. With that in mind, I'd consider the stock a buy at its current price.
