Eldorado Resorts Earnings Weren’t Great, But Stock Gets a Lift From Positive Analyst Chatter

Eldorado Resorts, Inc. (NASDAQ:ERI) reported third-quarter earnings of 47 cents per share on revenue of $663.18 million yesterday after the close of US markets. Wall Street was expecting earnings of 62 cents on turnover of $674.72 million, but shares of the regional gaming company are soaring Thursday after management reaffirmed its free cash flow (FCF) projection based on the acquisition of Caesars Entertainment Corp. (NASDAQ:CZR).

While those results were “nothing to write home about,” and that near-term profit taking in the stock is possible, according to Stifel analyst Steven Wieczynski, he remains enthusiastic about Eldorado’s prospects.

That said, we encourage investors to use any evidence of near-term trading weakness to aggressively add to positions in the name, as we come away from the quarter with even greater confidence in the prospects for ERI’s pending acquisition of CZR,” said Wieczynski in a note provided to Casino.org.

The Reno-based company remains on track to complete its $17.3 billion takeover of Caesars in the first half of next year. Shareholders from both companies vote on the deal, which will create the largest domestic gaming company in terms of number of properties, next week in Nevada.

In the aforementioned note, Wieczynski reiterated a “buy” rating on shares of Eldorado, while mentioning the stock has been added to the Stifel Select List.

Cash And Savings

Two of the primary points Eldorado has emphasized following the June announcement of the Caesars acquisition offer are the goal of saving at least $500 million when the two companies come together, and increased cash flow.

Previously, analysts have said that the $500 million cost reduction target is achievable, if not beatable, and that investors may not be fully appreciating Eldorado’s ability to generate free cash once Caesars is brought into the fold.

“We get it, management teams can say a lot of things, the large majority of which often never come true. Well, this isn’t any old management team,” said Wieczynski. “As evidenced again in the 3Q19 results, management has a proven track record of delivering on its promises, and we don’t see that changing this time around.”

Three Cornerstones

The analyst highlighted value-generating asset sales, the acquirer’s enhanced knowledge of Caesars’ real estate, and the markets in which those properties and potential spin-offs are located, as catalysts for Eldorado leading up to and following completion of the transaction.

Eldorado CEO Tom Reeg mentioned earlier this year that value could be extracted by separating Caesars’ online casino and sportsbook businesses into separate companies.

“All told, these items add to our level of confidence in the prospects for the deal and lead us to believe management could unlock even greater value for stakeholders beyond the items it has formally articulated to date,” said Wieczynski.

The analyst has a $58 price target on Eldorado, implying upside of about 16 percent from where it trades at this writing.