EUR 850.00 For Business Accounts Only

Morningstar | Caesars' Strong 1Q Vegas Hotel Performance Not Enough to Garner a Competitive Advantage

We think Caesars Entertainment will sustain its competitive positioning in lower-growth, lower-barrier Las Vegas (58% of estimated 2019 EBITDAR) and other U.S. regions (46%). (Caesars' managed and international properties are forecast to generate slightly negative EBITDAR in 2019). There is increasing competition from new casino supply and peer investment into existing assets. However, we see Caesars maintaining market share as it continues to allocate capital into renovating current properties and opening new development facilities, such as its Las Vegas convention center in 2020. These initiatives provide the opportunity to leverage the company's marketing efforts and its 55-million loyalty membership base (MGM's program has 32 million).Despite all this, Las Vegas and other U.S. gaming regions do not contribute to a moat for Caesar. U.S. gaming demand is lower than in Asian regions like Macau and Singapore, where the propensity to gamble is much higher. Also, the 1,000 commercial and tribal casinos in the U.S. have a total population of 325 million represent gaming supply, well in excess of the 41 and two casinos found in Macau and Singapore, respectively, with a Chinese and Singapore population of 1.4 billion and 5.6 million, respectively. Further, we expect supply growth in U.S. gaming to increase over the next five years with two resorts opening in Las Vegas that add a mid-single-digit percentage to market room supply and expansion of state gaming facilities. This compares to negligible additions in either Macau (we expect only one integrated resort to open the next 10 years) or Singapore (we see no additional licenses for the foreseeable future).Activist Carl Icahn owns around 18% of Caesars shares outstanding and controls four of the 12 board seats, as of April. Icahn is also exploring a potential sale of Caesars. While an acquisition could bring cost synergies to the combined entity, we don't envision it altering Caesars' competitive positioning enough to warrant a moat rating change, given the most likely tie-ups (El Dorado and Golden Nugget) offer further exposure to U.S. gaming facilities that we see offering no sustained competitive advantage.