UPDATE: A new analysis from David Bain, an analyst at Texas Capital, reveals that the online division of Caesars Entertainment could be worth more than the entire company itself. This development raises urgent questions about the true value of Caesars Digital, which Bain suggests could reach up to $9.6 billion, far exceeding the current market value of $5.3 billion for Caesars as a whole.
This assessment comes in light of a significant 24% revenue growth, with Caesars Digital reporting $343 million in revenue for the second quarter. The growing success has prompted discussions around potentially spinning off the digital division, which could also alleviate the company’s hefty $11.3 billion debt burden.
Bain’s forecasts, based on enterprise value-to-EBITDA ratios, indicate that even a conservative estimate of $6.25 billion for Caesars Digital could be on the low end. In a more favorable scenario, where comparisons are made to industry leaders like DraftKings and Flutter Entertainment, this figure could rise to as much as $9.6 billion.
As activist investors, including the notable Carl Icahn, express concerns that the market undervalues the digital assets, the pressure mounts on Caesars’ board to take action. Bain mentioned that, should the company’s stock price fail to reflect this valuation, a move to highlight the digital division’s worth could emerge by next year.
The potential sale of up to 80% of its digital business could revolutionize Caesars’ financial landscape. Bain estimates that such a sale, even at lower valuations, could reduce debt by $5 billion and significantly improve the company’s leverage ratios. This could boost annual free cash flow by approximately $350 million, creating substantial savings through reduced capital tied to complete ownership of the online segment.
While Caesars currently lags behind competitors like DraftKings and FanDuel in sports betting, it is making significant strides in the lucrative iGaming sector. Recent upgrades to the Caesars Palace app, which ranked third in industry tests, and the launch of the Horseshoe brand have contributed to this progress. Improved integration of online and offline offerings through enhanced casino host utilization is also paving the way for future growth.
Bain maintains a “buy” rating for Caesars, projecting a target price of $59, which is more than twice the current trading price. He emphasizes that Caesars’ future growth may hinge not just on its physical casinos but also on how it leverages the value of its digital operations.
As the market responds to these developments, the spotlight is firmly on Caesars Entertainment and its next moves regarding its digital assets. Investors and analysts alike will be closely monitoring the company’s actions as it navigates this pivotal moment in its history. Stay tuned for more updates as this story develops.
