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ATLANTIC CITY, NJ – JULY 8: The roulette wheel spins at Caesars Atlantic City July 8, 2006 in Atlantic City, New Jersey. Caesars, along with Atlantic City’s 11 other casinos reopend this morning after they were forced to close their gambling floors for the first time in their 28-year history due to the New Jersey state budget impasse. (Photo by William Thomas Cain/Getty Images)
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We believe there are several things to fear in CZR stock given its bad operating performance and financial condition. Keeping in mind its high valuation, we think that the stock is Very Unattractive. Here is our multi-factor assessment.
CZR Stock Trefis AI Assessment
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This is a cautionary tale, but even if the stock were doing well, there is always a significant risk in relying on a single stock. However, there is a huge value to a broader diversified approach. If you seek an upside with less volatility than holding an individual stock, consider the High Quality Portfolio (HQ) – HQ has outperformed its benchmark – a combination of S&P 500, Russell, and S&P midcap index, and achieved returns exceeding 105% since its inception.
In addition, risk management is key to wealth protection and growth. Consider, what could long-term portfolio performance be if you blended 10% commodities, 10% gold, and 2% crypto with HQ’s performance metrics.
Let’s get into details of each of the assessed factors but before that, for quick background: With $4.6 Bil in market cap, Caesars Entertainment operates as a gaming and hospitality company managing 52 properties across 16 states with approximately 55,700 slot machines, video lottery terminals, and electronic tables.
[1] Valuation Looks High
CZR Stock Valuation
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This table highlights how CZR is valued vs broader market. For more details see: CZR Valuation Ratios
[2] Growth Is Inconsistent
- Caesars Entertainment has seen its top line grow at an average rate of 3.2% over the last 3 years
- Its revenues have fallen -0.1% from $11 Bil to $11 Bil in the last 12 months
- Also, its quarterly revenues grew 2.7% to $2.9 Bil in the most recent quarter from $2.8 Bil a year ago.
This table highlights how CZR is growing vs broader market. For more details see: CZR Revenue Comparison
[3] Profitability Appears Weak
- CZR last 12 month operating income was $2.2 Bil representing operating margin of 19.3%
- With cash flow margin of 10.7%, it generated nearly $1.2 Bil in operating cash flow over this period
- For the same period, CZR generated nearly $-195 Mil in net income, suggesting net margin of about -1.7%
This table highlights how CZR profitability vs broader market. For more details see: CZR Operating Income Comparison
[4] Financial Stability Looks Very Weak
- CZR Debt was $25 Bil at the end of the most recent quarter, while its current Market Cap is $4.6 Bil. This implies Debt-to-Equity Ratio of 549.4%
- CZR Cash (including cash equivalents) makes up $982 Mil of $32 Bil in total Assets. This yields a Cash-to-Assets Ratio of 3.0%
CZR Balance Sheet Metrics
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[5] Downturn Resilience Is Very Weak
CZR has fared much worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.
2022 Inflation Shock
- CZR stock fell 73.0% from a high of $119.49 on 1 October 2021 to $32.26 on 30 September 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
- The stock is yet to recover to its pre-Crisis high
- The highest the stock has reached since then is $59.38 on 26 July 2023 , and currently trades at $21.86
2020 Covid Pandemic
- CZR stock fell 89.8% from a high of $69.47 on 20 February 2020 to $7.10 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 24 November 2020
2020 Covid Pandemic
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But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read CZR Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.