Caesars Entertainment hasn’t had a whole lot of reasons to smile these days and now things just took a thing for the worst after Bank of America research analysts cut the casino operators’ stock from “neutral” to “underperform”. In doing so, they reduced the company’s price objective from $16 to $10.
According to Bank America, the decision to downgrade Caesars Entertainment’s stock (CZR) from neutral to underperform comes as a result of rising execution challenges, including “recent management departures”, “slower 2Q growth in regional gaming markets”, “declining valuations in the online/social space, and a “dilutive asset sale.”
“Caesars’ has substantial operating/financial leverage ($23 billion debt) and is extremely sensitive to small changes in valuation,” BA said.
Caesars has been an icon in the casino gaming landscape for years, but business hasn’t been all that fruitful in recent years. And maybe that’s putting it lightly. Recently, the company posted a rise in net revenues rise 4.3% in Q1 2012, but even that couldn’t pull them out of the messy hole they’ve been, including a posted $280.6m loss for the quarter, almost twice the amount they lost in the same quarter the previous year. And worst of all, their current $23 billion debt is a huge albatross to a company whose current value is only around $1.5 billion.
Despite improvements raised by the Caesars IPO earlier this year, where 1.81 million shares were sold at $9 – it even hit a high of $17.90 – or recent movements that saw its shares traded up 0.71% ($11.40) during mid-day trading last Friday, investors, or at least the astute ones, have determined that the company’s overall debt and the resulting stocks unpredictability attached to it reads like a “Stay Away” neon sign. Even CNBC’s Gary Kaminsky was quoted by Peter Amsel, saying that the Caesars IPO is “the dumbest thing I’ve ever seen”. Not exactly the kind of vote of confidence people are looking for.
Add that to the influx of movement that’s been going on within the company and the expected downturn in the second quarter of the year, and it was more than enough for Bank of America analysts to determine that Caesars’ stock is something a lot of people should keep a close eye on.
