Tuesday, Raymond James initiated coverage on Caesars (NASDAQ:CZR) Entertainment (NASDAQ:CZR) stock with a strong buy rating and a price target of $55.00 per share. The firm expressed a positive outlook for the company's future, anticipating an improvement in performance throughout the remainder of 2024.
The analyst cited Caesars Entertainment's first-quarter results as complicated but attributed the issues to one-time factors. The expectation is set for the company to deliver better results as the year progresses.
Two main concerns for investors regarding Caesars Entertainment have been its digital profitability and high leverage. However, Raymond James sees a "clear path" for the company to resolve these issues.
The path includes the digital business starting to yield positive EBITDA and the opportunity for Caesars Entertainment to significantly reduce its debt through free cash flow. The valuation approach taken by Raymond James employs a combination of EBITDA multiples and a sum-of-the-parts analysis.
For the land-based operations, an average EBITDAR multiple of 7.5x was applied, after which net debt and capitalized lease debt were deducted, arriving at a value of $40 per share.
The company's digital business was estimated to contribute an additional $15 per share in value. By combining the valuations of both segments, the firm established a target price of $55 per share for Caesars Entertainment.
InvestingPro Insights
As Raymond James initiates coverage of Caesars Entertainment with a strong buy rating, real-time data from InvestingPro provides additional context for investors considering the company's stock. With a market capitalization of $7.56 billion and a P/E ratio standing at a modest 9.82, Caesars appears to be valued attractively in the market. The adjusted P/E ratio for the last twelve months as of Q1 2024 further reinforces this point at 8.86.
InvestingPro Tips highlight the volatility in Caesars' stock price, with the company trading near its 52-week low, which may present a buying opportunity for long-term investors. Analysts predict profitability this year, and the company has maintained profitability over the last twelve months. However, investors should note that short-term obligations exceed liquid assets, which could pose liquidity risks. For those interested in a deeper dive, InvestingPro offers additional insights, with PRONEWS24 granting an extra 10% off on a yearly or biyearly Pro and Pro+ subscription.
With revenue growth showing a slight increase of 0.71% over the last twelve months as of Q1 2024, and a gross profit margin of 52.64%, Caesars Entertainment seems to maintain a strong position in terms of earnings. These metrics, combined with the analyst's positive outlook, suggest that the company's financial health could support the anticipated improvement in performance. For a more comprehensive analysis, there are 5 more InvestingPro Tips available, which can provide investors with a broader understanding of Caesars Entertainment's financial landscape.
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