Caesars Stock Can Shed Laggard Status

Posted on: April 1, 2024, 11:19h. 

Last updated on: April 1, 2024, 02:38h.

Shares of Caesars Entertainment (NASDAQ: CZR) are lower by 5.4% year to date. That’s a far cry from the gains notched by the S&P 500, the VanEck Gaming ETF (NYSEARCA: BJK), and the broader consumer discretionary sector.

Las Vegas slots
A customer plays slot machines at Caesars Palace. The stock is a prime candidate to shed its laggard ways. (Image: Getty)

On the other hand, the Harrah’s operator is up 7.5% over the past week, indicating it has the potential to shake out of its funk. CNBC recently screened for S&P 500 stocks that are flat to down 10% since the start of 2024 that are consensus buy-rated by analysts, and with at least 20% to those analysts’ consensus price targets. Caesars checks all three boxes.

In fact, of the 10 stocks to make the list, the casino operator offers the most potential upside to the Wall Street consensus price forecast at 37%. Indeed, the sell side is constructive on the gaming stock with 12 of the 16 analysts covering it rating it the equivalent of “strong buy” or “buy.” The other four call it a “hold.” The average price target of $59.81 implies upside of 36.2% from current levels.

Some analysts believe the stock has been punished too harshly, particularly as gross gaming revenue (GGR) in Nevada consistently flirts with or breaks records. Additionally, there has been recent, modest buying of the stock by Caesars insiders, which could be a bullish sign.

Caesars Stock Still a Hedge Fund Favorite

In addition to being a favored idea among sell-side analysts, Caesars stock remains popular in the hedge fund community — a status frequently bestowed upon the shares.

Recent data released to clients by Bank of America indicates Caesars has a net relative hedge fund to S&P 500 weight of 11.88, a tally exceeded by just 10 other stocks. That puts the Flamingo operator on the top-20 list of equities most embraced by hedge funds. It’s also the only gaming name in that group.

Hedge funds’ relative weight is defined as those market participants’ reported long exposure minus estimated short positions.

The gaming company is doing an admirable job of slashing debt and could benefit if the Federal Reserve proceeds with lowering interest rates this year. Those could be among the factors prompting some hedge funds to take long positions in Caesars.

Speaking of Rate Cuts …

Also making an appearance on the aforementioned CNBC list was VICI Properties (NYSE: VICI), which is the largest casino landlord in the US and the owner of Caesars Palace real estate. Beyond that iconic venue, Caesars is one of the real estate investment trust’s (REIT) biggest tenants.

REITs are among the most rate-sensitive asset classes and with the Fed’s benchmark lending rate residing at 20-year highs, it’s easy to understand why shares of VICI are mired in a lengthy slump.

Still, the stock is beloved by analysts, with 20 of the 23 covering it rating it “strong buy” or “buy.” The consensus price forecast of $35.91 on VICI implies upside of 20.7% from current levels and a dividend yield of 5.6% is more than 125 basis points above what investors earn with 10-year Treasurys.