Analyst says Caesars looking to drive value from digital unit

Posted: January 3, 2025, 05:49 pm.

Last updated: January 3, 2025, 05:49 pm.

Another analyst is speculating that Caesars Entertainment (NASDAQ: CZR ) could make moves this year to extract value from its digital operations, which includes Caesars Sportsbook.

In a new report to clients, Deutsche Bank analyst Carlo Santarelli said an emerging story is that Caesars management is unhappy with market participants' inadequate valuation of the interactive business, which has recently racked up losses and struggled with profitability. It has increased further. That discontent could force the leadership to take action, although it remains to be seen what that might be.

Santarelli estimated that if Caesars' digital unit could meet or beat the consensus forecast of 2025 revenue of $352 million while trading at 12.5x earnings before interest, taxes, depreciation and amortization (EBITDA), the digital segment would be heavily leveraged. Will trade at a discount. That compares with the share prices of rivals DraftKings (NASDAQ: DKNG) and Caesars, which would cost it as much as $20.75 per share. If that estimate is anywhere near accurate, it arguably confirms the notion that investors are not giving the online segment credit based on Caesars stock's closing today at $32.51.

If the Internet business is close to that amount, it means the operators' brick-and-mortar operations are being heavily discounted, based on this year's adjusted earnings before interest, taxes, depreciation, amortization and restructuring or rental costs (EBITDAR). Has been given.

Given that more than half of the EBITDAR from the core brick-and-mortar business is generated from wholly owned assets, we consider the trading multiple to be artificially low and indicate some part discount to the overall total. The market,” Santarelli said.

Based on the analyst's math, Caesars Digital is worth $4.4 billion, meaning if that figure or something close to it could be extracted in a corporate transaction, the move could create value for shareholders and reduce the operator's debt burden. Will go a long way towards.

Scissors Digital Scuttlebutt Intensifying

Santarelli's comments came about a week after Truist Securities analyst Barry Jonas said a spinoff of that unit was possible this year as Caesars moves to unlock value from its digital operations.

Additionally, Caesars Sportsbook's current market share is not enough to entice a potential buyer to pay what the seller would be hoping to bring.

Then there's the lack of activity on the iGaming legislative front. Caesars has a solid position in that area, but only seven states allow this form of betting and there is nothing more than speculation to suggest that figure will increase this year, with prospective buyers willing to pay for the hope. Can't be.

caesar digital rumors are old

Rumors regarding Caesars' online operations have been swirling for over four years and the company itself has stated that it is prepared to close down the business, but has also expressed interest in retaining full ownership.

In the spinoff, Caesars may retain some equity in the online segment, although it would result in less dollar inflow into the company following the transaction. This may be a hedge because not retaining full ownership of the online entity comes with risks.

In particular, iGaming is a highly profitable, low-margin endeavor, and with more states entering that fray, operators will likely want complete control over their Internet entities.