The third quarter of the year wasn’t what Eldorado Resorts had hoped it would be. The casino operator, which is set to acquire Caesars Entertainment, reported weaker than expected revenue this week, but it wasn’t all bad news. The money may be flowing in as rapidly as Eldorado had expected; however, the company’s stock price continues to remain strong.
Eldorado saw revenue of $663.18 million in the quarter when it reported its earnings on Wednesday. This was equal to $0.47 per share, but much lower than the $0.62 Wall Street had forecast. Analysts had also expected the company to see turnover of $674.72 million, slightly more than what was reported.
Eldorado sees nothing but green lights for the takeover of Caesars, a deal reportedly worth around $17.3 billion. That acquisition now hinges on a vote by shareholders of both companies, which is expected to take place next week. If all goes well, the deal should be finalized sometime during the first half of next year.
Eldorado is ready to get rid of what it dubs some of its non-core assets, such as Cap Girardeau, Caruthersville and Mountaineer, which will go for around $385 million, and IOC Kansas City and Lady Luck Vicksburg, to be sold for $230 million. Caesars is getting rid of the Rio Las Vegas for $510 million and, between the sale of all of these, Eldorado won’t have to borrow as much money to consummate the merger. Additional value could be generated if Caesars separates its online casino and sportsbook operations, as has been suggested by Eldorado CEO Tom Reeg.
Putting together all of those pieces, Eldorado will have more positive free cash flow, which was welcome news to investors. Wednesday afternoon, the company was trading at about $46.88 before starting to see a rally that continued until the markets closed a day later. By 3:30 yesterday, the price had risen to $50.40, approaching its 2019 high of $53.27 from this past June.
Eldorado, despite the revenue slip in the quarter, is remaining strong, especially in comparison to the competition. John DeCree of Union Gaming (UG) states, “While the market was largely expecting an in line quarter, the return to high-single-digit same-store EBITDAR [earnings before interest, taxes, depreciations, amortization and rent/restructuring costs] growth is at least 2x the rate of which most of [Eldorado’s] peers have been growing.”
DeCree also expects a strong future ahead for Eldorado and the post-merger. He reiterated UG’s “Buy” on Eldorado and gave the company’s stock a price target of $70, adding, “Looking ahead, we see a number of value creation opportunities involving underutilized land on the Las Vegas Strip, various sports betting partnerships, including the William Hill U.S. JV, and the Pompano Park development. While these are likely longer-tailed opportunities, they represent upside to our current valuation.”
