Caesars Entertainment shares are down nearly 60% from their highs. Is it time to buy?

Caesar’s entertainment (CZR 17.83%) posted a record quarter while declaring that October was the “strongest month ever” for business in Las Vegas.

With the global sports betting market set to grow at more than 10% annually through 2029, the leading players – and their investors – will benefit significantly. Let’s take a closer look at Caesars’ Q3 results and whether this casino stock is a buy.

Caesars’ record third quarter performance

Caesars set a new quarterly record of more than $1 billion for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the third quarter, up 15% year over year. Caesars saw a return to “normal seasonality” in the third quarter and relied on all aspects of its Las Vegas segment for the record-breaking performance.

Occupancy in the Las Vegas segment reached 94% in the third quarter, driven primarily by strong bookings in July and September. As a result, hotel revenue and third-quarter profit each set new records, alongside gaming revenue, which also hit an all-time high.

Caesars Digital, which includes Caesars Entertainment’s digital sportsbook and online casino, saw revenue increase 121% — $212 million versus $96 million in the third quarter last year. Although the digital segment ended up posting a quarterly loss of $38 million, that was a huge improvement over the digital loss of $164 million in the third quarter of last year.

Caesars CEO Tom Reeg cited “improved operational efficiencies” as the key catalyst for the lower-than-expected loss in the digital space. Overall, Caesars Q3 earnings per share (EPS) of $0.24 beat analyst expectations of $0.15 per share while marking a significant improvement from last year’s Q3 loss of $1.08 -dollars per share.

High operating costs

Exceptionally high utility costs in the third quarter impacted profitability and significantly reduced margins. While the company’s ideal third-quarter profit margin should be between 48% and 49%, the actual figure was around 35%.

In addition to utilities, construction disruptions also contributed to lower margins. As the casino completed a multi-million dollar renovation of the main entrance to Caesars Palace, disruptions caused traffic to slow and impacted performance in the third quarter. Caesars Palace’s new entrance, now complete, includes refreshed gaming areas, a new lobby bar and a crystal chandelier weighing approximately 3,200 pounds.

Main entrance of the Casino Caesars Palace, Las Vegas.

Image Credit: Caesars Entertainment.

looking ahead

While announcing the company’s third-quarter results, Reeg said, “October was the strongest month in Las Vegas history for Caesars.” Caesars reported adjusted earnings for the month of over $200 million, a double-digit increase area compared to the previous year. So far so good for the fourth quarter.

A key takeaway from the Q3 earnings call was Reeg’s confidence in Caesars Sportsbook. October proved to be a pivotal month for Caesars Digital, with adjusted earnings turning negative to positive. Considering the change came 12 months ahead of the company’s expected date, Caesars management was “extremely pleased” with the surprise.

Another potential tailwind for Caesars is international travel, which continues to recover. With many entertainment and sporting events coming to Sin City over the next 18 months, Caesars anticipates a surge in international tourism. The company is bullish on its bookings and occupancy for 2023.

Is Caesars Entertainment Stock a Buy?

Caesars shares are currently trading about 60% below their October 2021 highs — as the company braced to post a $233 net loss for the third quarter. In comparison, the company made $52 million in profit last quarter.

Despite the positive momentum, Caesars stock remains in a major slump. Given all the information cited above, it is likely that the stock’s performance will not be in line with the company’s performance. If Caesars Entertainment continues on its current course, investors should see some recovery to the upside. With that in mind, I would consider the stock a Buy at the current price.

Micah Angel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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