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Why Caesars Entertainment Corp's Shares Jumped 30% Last Month

By Travis Hoium – Mar 11, 2016 at 4:55PM

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Renewed optimism that Caesars won't go bankrupt had the stock moving higher.

What: Shares of gaming giant Caesars Entertainment Corp (CZR) jumped a whopping 30% in February as investors became hopeful the company may avoid bankruptcy.

So what: One bullish sign was the company's fourth-quarter earnings results. For the properties not in bankruptcy protection, revenue was up 8.7%, driven by rising hotel room rates in Las Vegas. The small loss of $76 million, or $0.54 per share, was also an encouraging sign after reporting billions in losses the last few years. 

There was also renewed optimism that the bankruptcy of the company's largest operating unit wouldn't drag the entire company into bankruptcy. That's far from a certainty, but the longer the dispute drags on and the stronger operating results get, the more optimism investors have. 

Now what: No matter what happens on the earnings front, the future of Caesars Entertainment is going to be decided in bankruptcy court. If it's deemed that the currently bankrupt operating company isn't going to cause a default at the parent, the stock will pop. But I think there's a strong likelihood an all-out bankruptcy will happen. That risk of losing everything is reason enough to stay out of the stock, no matter what the move was last month.

Travis Hoium has no position in any stocks mentioned. The Motley Fool is short Caesars Entertainment. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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