In one of its best days since the merger with Eldorado Resorts, Caesars stock (NASDAQ: CZR) went up on August 13 by 9%. That’s following a JP Morgan analyst giving the gaming company an outperform rating.
Daniel Politzer, an analyst with JP Morgan, resumed coverage of Caesars Entertainment on August 13 with an overweight rating. Also, Politzer set a December 2021 target price of $50 following the removal of a Not Rated designation.
Politzer sees Caesars stock as high-risk and high-reward; he thinks the upside potential from a recovery of the US gaming market as well as the growth potential of sports betting and online casinos is worth the risks both Caesars, and the casino industry at large, faces.
What we cover
Caesars/Eldorado Merger
It’s been around a month since Eldorado Resorts completed its $17.3 billion acquisition of Caesars, and changing its name from Eldorado to Caesars in the process.
Wall Street has been mostly bullish on Caesars stock. Analysts frequently cite factors such as the strength of Caesar’s online casino, sports betting, and regional portfolios of land-based casinos. In fact, JPMorgan looks at Caesars stock as an “attractive” opportunity when it comes to gaming companies.
JP Morgan views Caesars stock as a high-risk, high-reward stock with a 35% upside for investors looking into the recovery of the US regional gaming market. The US gaming market has permanently lower operating expenses that could yield higher than historic margins.
Higher margins and better-than-expected foot traffic, especially at its properties in the Southern United States, are bolstering Caesars’ regional portfolio. That’s very beneficial, since the company is still waiting for Las Vegas to fully rebound from the effects of the months-long coronavirus shutdown.
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Betting on the Future of Sports Betting
JP Morgan is very impressed by Caesars’ presence in the online casino and sports betting markets, segments that the investment community is deeply interested in.
For years, Caesars has been a retail sportsbook giant; now, it has a growing online casino business in states where online gambling is legal. As more states are expected to legalize both online sports betting and casinos to recover lost tax revenue following the COVID-19 shutdowns, analysts are impressed with not only Caesars stock, but online gambling companies in general.
Some analysts believe that the sports betting market alone could reach $28 billion, and online casinos could reach $9.5 billion over the next few years.
JP Morgan is impressed by the attractive growth potential of the US online casino and sports betting industry. This is a segment that will likely break away from the land-based casinos sooner rather than later. JP Morgan believes this is a potential catalyst for valuation multiple expansion, an opportunity that could be worth $17 per share, or ~46% of the current share prices.
Big Money Betting on Caesars Stock
During a conference call with investors and analysts last week, Caesars CEO Tom Reeg revealed that a “permanent solution” for the company’s online casino and sportsbook could be unveiled by the end of the year.
Previously, Reeg had said those divisions might be spun off to generate more value for investors. That was due to the equity of the old Caesars didn’t really reflect the growth opportunity offered by online gambling. However, Reeg was careful to say that the company won’t react too quickly, simply because the stock market has assigned big expectations for online gaming companies.
Reeg also indicated that online casinos and sports betting could generate $600 to $700 million in revenue for Caesars in 2021. Of that, the lucrative New Jersey iGaming sector could contribute $125 million.
JP Morgan’s $50 price target on Caesars stock implies around a 25% upside from current levels. Moreover, that’s just slightly below the stock market average of $52.
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