If 2023 was the year that life returned to post-pandemic normal, 2024 should be the year that Caesar’s Entertainment (NYSE: CZR) makes up for some lost time…
Occupancy rates on the Vegas strip have recovered to within 3% of pre-pandemic levels. There’s now an annual Formula 1 race in Vegas. There’s gonna be more Super Bowls, and concerts at that weird-looking Sphere thing, convention-goers were up 20% from 2022 to 2023…
So why is Caesar’s Entertainment (NYSE: CZR) stock still trading at pre-pandemic levels?
During the second of 2019 the U.S. economy started to surge. Starting in September of 2019, shares of Caesar’s Entertainment ran from $40 to a high of $70.74 in February of 2020.
Here we are, 4 years later and Caesar’s stock is trading just under $42 a share.
Seems weird…but the fact is, Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN) are also at or below their pre-pandemic levels. MGM (NYSE: MGM) is the only one that’s managed to move higher since 2019.
Call me paranoid, but I’m not wild about casino stocks focused on Macau. China’s government has put the clampdown on Macau before, so it seems like a strange move for Las Vegas Sands to completely bail on Las Vegas and move all its operations to Macau.
At least Wynn has a finger in both the Vegas and Macau pies.
The Value Question
Caesar’s is by far the cheapest of the Big 3. MGM has a forward price-to-earnings (P/E) ratio of 24, Wynn’s forward P/E is 21, and Caesar’s is just 12. And Caesar’s is the only one with a PEG ratio below 1 – meaning that its earnings are growing faster than its stock price.
Some people think the fact that Caesar’s shares are cheap is an opportunity…
On the last earnings conference call, an analyst asked what Caesar’s planned to do with its substantial free cash flow, which was $4 billion for 2023.
Caesar’s CEO Thomas Reeg said: “As we get to the inflection point in our capital cycle at that point, we’ll look at where we are from a leverage standpoint where the stock price is. I can tell you that if it has a 4 handle, I would expect it. We would be a buyer of our stock at that point.”
The CEO is telling us outright: if Caesar’s stock price is still in the $40s during the second half of this year, they will start buying the stock back.
Now I know, the market has gone ga-ga for AI stocks. Caesar’s didn’t mention AI once on that earnings conference call I just referenced, and I gotta say I was a little relieved, (even though I’m sure Caesar’s is experimenting with AI applications focused on Caesar’s treasure trove of customer data to come up with some marketing ideas).
But I have to admit – it was a form of AI that led me to Caesar’s stock…
AI Trading Agent
I use a big data software program for trading. This program can sort 100 years of trading data for any Nasdaq 100 or S&P 500 stock for any time period I select. So, if I wanted to know how shares of General Electric traded between March 25 and April 10 going back 100 years, I can have that data with the click of a mouse. I call this software program my “AI Trading Agent” because it can deal with massive amounts of data very quickly. Maybe it’s not technically AI, but it comes in really handy…
Here’s what it has to say about Caesar’s Entertainment:
I selected the window you see on the chart – March 25 through June 8. The statistics say that during this time frame, Caesar’s has rallied 8 out of the last 10 years. 80% win rate…
But even better, the average return for those 10 years is 24.6%. That’s the average gain, taken from the 8 up years as well as the 2 down years. That’s big.
Now, you might wonder: doesn’t the last decade include the massive COVID rally that started on March 23, 2020? Yes, it does. And you might also ask: wouldn’t that rally – which took CZR shares from $8 to $43 – skew the results a little? Once again, you’d be correct…
So, let’s take a wider view of how Caesar’s stock traded between March 25 and June 8. Here are the results from the last 25 years:
The 25-year view shows the win rate has fallen to 72% and the average gain down to 17.87%. BUT – these are still very, very solid numbers.
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
