The Corporate Restructuring Report-Caesars Entertainment Corp (CZR) Update
On October 6, 2017, Caesars Entertainment Operating Company (CEOC), a subsidiary of Caesars Entertainment Corp (Nasdaq: CZR) completed the restructuring process under Chapter 11 bankruptcy. The company had filed for bankruptcy on January 15, 2015. In our note dated October 10, 2017, we had a positive view on Caesars and continue to remain bullish on is prospects. The company reported solid 3Q17 results with revenue accelerating and margins improving. The results were supported by growth in gaming volmes across regional properties and success from business improvement initiatives. Caesars is one of the largest gaming operators in the world and maintains #1 or #2 share in most markets it competes.We believe CZR benefits from solid macro trends at Las Vegas strip given that it generates the majority of its EBITDAR from LV strip. The ongoing hotel room renovations in LV should accelerate revenue and earnings in near to medium term. CZR is targeting to complete renovations at ~88% (or 21K) of its rooms by 2020. We expect business improvement initiatives to continue to drive margins (~800 million reduction in operating expenses over the past 2 years).
With a better cost structure enabling cash flows coupled with solid cash balance, liquidity should no longer be a major constraint. The resolution of bankruptcy and improved capital structure will enhance CZR's flexibility for M&A. The company recently completed the acquisition of Centaur Holdings, which will add two racing and casino properties in the Indianapolis area. In our view, CZR is undervalued.
Caesars Entertainment is a holding company that provides casino-entertainment and hospitality services. The company's facilities include gaming offerings, food and beverage outlets, hotel and convention space, and non-gaming entertainment options. In addition to its brick and mortar assets, the company operates an online gaming business that provides real money games in certain jurisdictions and provides retail sports wagering in certain jurisdictions. The company's consolidated business is composed of five complementary businesses: casino entertainment, food and beverage, rooms and hotel, casino management services, and entertainment and other business operations, including mobile sports betting.
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