Caesars Stock Dubbed Contrarian Idea, Analyst Says Bet on Las Vegas Recovery Now

Posted on: December 14, 2020, 07:13h. 

Last updated on: December 14, 2020, 11:22h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

It’s up 1,061 percent from its March lows, but Caesars Entertainment (NASDAQ:CZR) stock is earning praise as a contrarian bet from a sell-side analyst. He says now is the time to bet on a rebound by the Las Vegas Strip.

Caesars stock
Caesars Palace on the Las Vegas Strip, seen here. An analyst sees the stock as the ideal way to play Sin City recovery. (Image: CNBC)

Last Friday, Loop Capital analyst Daniel Adam initiated coverage of the Flamingo operator with a “buy” rating and an $82 price target, implying upside of 17 percent from the Dec. 11 close.

Given the almost universally accepted view that it will take several years for Las Vegas to recover, we firmly believe that now is the time to put our stake in the ground as a contrarian bull on the medium- and long-term outlooks for both CZR and Las Vegas in general,” said the analyst in a note to clients.

Caesars is the second-largest operator on the Strip behind MGM Resorts International (NYSE:MGM). In a normal operating climate, heft in the biggest domestic gaming market is a positive trait. But the coronavirus pandemic is flipping that script in 2020, crimping gaming companies in the process.

Amid the first wave of COVID-19 cases earlier this year, Nevada gaming properties were shuttered for more than two months. Recently, another spike in cases prompted Gov. Steve Sisolak (D) to cap capacity on gaming floors, bars, and restaurants to 25 percent. On Sunday, he extended that policy by a month to Jan. 15, 2021.

Vaccine Gives Caesars a Shot

Over the course of the pandemic, Caesars is one of Wall Street’s preferred gaming ideas on the back of encouraging coronavirus vaccine developments.

That situation is playing out in real-time, as the first batch of COVID-19 treatments jointly developed by Pfizer and BioNTech arrived in New York today. It’s expected that 2.9 million doses will be shipped to 636 locations across the country by the end of the week.

Still, most Americans won’t have access to a vaccine until well into the new year. However, that timeline jibe’s with Adam’s forecast that Las Vegas will start recovering around that time. The Loop Capital analyst points to robust airline and group booking data, which potentially signals a mid-2021 rebound for Sin City, earlier than many of his colleagues previously projected.

Heading into this year, the Caesars Forum conference center was expected to be a major catalyst for the operator. That conference space opened in March and booked $300 million in business prior to opening. But the pandemic around the Las Vegas convention and meeting traffic to a halt.

Bullish Outlook

Even with the destination market struggles, analysts are mostly bullish on Caesars, frequently pointing to the company’s deep regional portfolio as a buffer against Sin City’s sluggishness.

Additionally, the company is closing in on a $3.69 billion takeover of William Hill, a transaction that makes the buyer a force in the booming iGaming and sports betting markets.

The $82 forecast Loop Capital’s Adam has on Caesars stock is above the Wall Street consensus of $75.67, but below the high target of $100. Fifteen analysts cover the name, with 11 placing the equivalents of bullish or very bullish ratings on the shares.