Caesars Stock Tipped as Rebound Idea

Posted on: January 25, 2022, 09:29h. 

Last updated on: January 25, 2022, 10:09h.

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

Gaming equities are mired in multi-month slides, and Caesars Entertainment (NASDAQ:CZR) is no exception. But some traders believe the stock is a prime candidate to bounce back.

Caesars stock
Caesars Palace on the Las Vegas Strip. Some traders believe the stock is heading toward a rebound. (Image: Getty Images)

Even with the benefit of an epic rally off the intraday lows on Monday, the recent tale of the tape for Caesars’ stock is lousy. The shares are off almost 19 percent year-to-date, 32.21 percent over the past 90 days, and reside 36.19 percent below the 52-week high.

The security has been chopping lower since hitting an Oct. 1, record high of $119.81, culminating in a Jan. 21 annual low of $72.72. Shares also breached a recent floor at the $84 level, and sank further below the once-supportive 320-day moving average,” according to Schaeffer’s Investment Research.

Still, Caesars remains a favorite among sell-side analysts, even as reopening stocks scuffle. They point to margin expansion, management’s cost-reduction and cash-generating efforts, and strong 2022 Las Vegas revenue growth, among other factors, as potential catalysts for the stock this year.

Some Traders Enthusiastic About Caesars Stock

While shares of the Harrah’s operator are being drubbed in recent months, there’s evidence suggesting some traders are betting on a rebound.

“Options traders have been more bullish than usual, however. Over at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CZR’s 10-day call/put volume ratio of 4.20 stands higher than 88% of readings from the past year. This means calls have been outnumbering puts on an overall basis,” adds Schaeffers.

Calls are the options contracts traders purchase when they expect the underlying security will appreciate.

As for near-term catalysts, Caesars is expected to announce the sale of one of its Las Vegas venues early this year. But an exact date and what property aren’t yet known. Still, recent prices on Strip venue sales have analysts excited about what Caesars could command in such a transaction.

The company reports fourth-quarter earnings on Feb. 22.

Other Issues to Consider with Caesars

Beyond an asset sale, an obvious avenue by which Caesars management can generate more confidence in the stock is by proving to investors free cash flow generation is perking up.

At a time of rising inflation and expected interest rate increases by the Federal Reserve, investors are prizing cash-generating companies. In the case of Caesars, cash flow accumulation is all the more important because the operator has $2.66 billion in cash on hand, compared to $26.93 billion in liabilities. Other fundamental factors are more encouraging.

“However, Caesars Entertainment stock has forward price-earnings ratio of 35.59, indicating an expected shift into profitability. Plus, the company has maintained strong top-line growth, increasing revenues by a whopping 309 percent since 2018. Moreover, CZR is expected to increase revenues in 2022, setting it up as a decent recovery play,” concludes Schaeffers.