Caesar’s entertainment (CZR – Free Report) closed the last trading session at $49.98 and is up 26.2% over the past four weeks, but the stock could still have plenty of upside potential if short-term price targets set by Wall Street analysts are any guide. The mid-point price target of $67.09 indicates a 34.2% upside potential.
The median estimate includes 11 short-term price targets with a standard deviation of $17.94. While the lowest estimate of $27 indicates a 46% drop from current price levels, the most optimistic analyst expects the stock to climb 104.1% to hit $102. It is very important to note the standard deviation here as it helps to understand the variability of the estimates. The smaller the standard deviation, the greater the agreement among analysts.
While the consensus price target is a highly sought-after metric for investors, relying solely on this metric to make an investment decision may not be wise at all. Analysts’ ability and impartiality in setting price targets has long been questionable.
However, an impressive consensus price target is not the only factor pointing to potential upside in CZR. This view is bolstered by the consensus among analysts that the company will report better earnings than previously anticipated. While a positive trend in earnings estimate revisions gives no idea how much the stock could rise, it has proven effective in predicting upside potential.
Price, consensus and EPS surprise
Here’s what you should know about analyst price targets
According to researchers at several universities around the world, a price target is one of many pieces of information about a stock that far more often mislead than guide investors. In fact, empirical research shows that price targets by multiple analysts, regardless of the degree of agreement, rarely indicate where a stock’s price might actually go.
While Wall Street analysts have an in-depth understanding of a company’s fundamentals and the sensitivity of its business to economic and industry issues, many of them tend to be overly optimistic about price targets. Are you wondering why?
They usually do this to generate interest in the stocks of companies with which their firms either have existing business relationships or wish to be associated. In other words, business incentives for companies backing a stock often result in inflated price targets set by analysts.
However, a tight cluster of price targets, represented by a low standard deviation, indicates that analysts have a high degree of consensus about the direction and magnitude of a stock’s price movement. While that doesn’t necessarily mean the stock will hit the average price target, it could be a good starting point for further research aimed at identifying the potential fundamental drivers.
While investors shouldn’t completely ignore price targets, investing solely on price targets could result in a disappointing ROI. Price targets should therefore always be viewed with great skepticism.
Why CZR could see a solid uptrend
Growing optimism among analysts about the company’s earnings prospects, as evidenced by the strong consensus between them in raising EPS estimates, could be a legitimate reason to expect the stock to move higher. That’s because empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
The Zacks consensus estimate for the year to date is up 14.9% over the past month as three estimates rose versus no negative revision.
Additionally, CZR currently has a Zacks rank of #2 (Buy), meaning it’s in the top 20% of more than 4,000 stocks we rank based on four factors related to earnings estimates. Given an impressive, externally verified track record, it’s a more consistent indication of the stock’s near-term upside potential. You can see the full list of today’s Zacks stocks ranked #1 (Strong Buy) here >>>>
While the consensus price target may not be a reliable indicator of how much CZR could gain, the direction of price action it implies seems like a good guide.