Caesars Earnings: Vegas and Digital Demand Stout, With Balance Sheet Strengthening

We think investors are unduly focused on macroeconomic growth and credit availability concerns, thoroughly underappreciating no-moat Caesars’ CZR resilient demand in Vegas, ramping digital business, and improved balance sheet. We don’t plan to materially alter our $81 per share fair value estimate and see shares offering an attractive risk/reward.

To this effect, Vegas demand remains strong, with first-quarter occupancy of 95% matching the level seen last quarter, while revenue grew 24% from last year. Further, EBITDA margin expanded three percentage points to 48% over that period, aided by a mix toward higher profit group and convention customers, which constituted 21% of room nights in the quarter, well above the 14% prepandemic mix. Although comparisons get tougher from here, we continue to expect Caesars’ Vegas sales to lift 4% in 2023.

Further, we remain confident that Caesars will be a leader in the growing digital gaming industry. Digital net sales and EBITDA of $238 million and a loss of $3.5 million, respectively, matched well against a negative $53 million and loss of $554 million last year. The improvement is being spurred by Caesars’ industry-leading 60 million loyalty customer database and cross-selling across its omnichannel. In this vein, management suggested that its brick-and-mortar business is seeing around an incremental $300 million annual revenue run-rate from customers emanating from the digital side of the business. We continue to expect the company’s digital business to be profitable in 2023, ramping to a low-30% EBITDA margin in 2025.

Finally, management continues to work down debt levels, supporting our Exemplary Capital Allocation rating. Leadership has a spectacular track record of balance sheet management, which we don’t believe is being rewarded by the market. In fact, Caesars has paid another $400 million in debt so far this year and expects 2023 to be its third straight year of working down its obligations by $1 billion.