Caesars Lands Another $100 Target as Analyst Says ‘Little Credit’ Assigned to Sports Betting Unit
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Caesars Entertainment (NASDAQ: CZR) is making waves in the gaming industry as it pushes forward with a $3.69 billion takeover attempt of William Hill (OTC:WIMHY) and one analyst sees significant upside ahead for the Flamingo operator.
In a note to clients Monday, Union Gaming analyst John DeCree reiterated a “buy” rating on Caesars stock while boosting his price target on the name to $100 from $60, becoming the second Wall Street analyst predicting the gaming company will ascend to the triple-digit club.
Integral to DeCree’s thesis is the notion that despite the rapid growth of online casinos and sports wagering in the US and corresponding lofty multiples investors assign to related equities, markets aren’t adequately valuing those businesses at Caesars.
Our $38/share valuation of the casino business implies the market is ascribing just $18/share (~$3.8bn) to CZR’s sports/iCasino business,” said the analyst.
Up almost 20 percent over the past month, Caesars stock closed just over $57 on Monday, meaning DeCree’s new $100 price forecast implies upside of 75.4 percent.
Comparing Caesars Stock to DraftKings
Although its been public less than six months, DraftKings (NASDAQ:DKNG) is rapidly becoming the measuring stick for other companies in the sports wagering industry. Over the past two days, the shares are retreating, but the stock nearly doubled over the past three months and sportsbook operator has a market capitalization of $20.87 billion, nearly double Caeasars’ $11.44 billion.
DeCree says Caesars’ internet casinos and sports wagering businesses, particularly when allotting for a potential combination with William Hill, are undervalued relative to DraftKings, indicating investors can access high-growth assets at more compelling valuations than are seen elsewhere in the industry.
“We estimate CZR (when combined with William Hill US) will generate comparable levels of US sports/iCasino revenue in 2021-22 as implied by DKNG Consensus estimates,” said the analyst. “In spite of this, the embedded value of CZR’s business is just a fraction (15%) of DKNG’s market value.”
DeCree says the valuation chasm between Caesars iGaming and sports betting units and DraftKings doesn’t need to close entirely to make the former worthwhile for investors.
“While we aren’t suggesting CZR’s should entirely close the valuation gap, we do believe there is significant unrealized value here,” he said. “The first step to unlocking that value is the pending acquisition of William Hill PLC that will give CZR 100% ownership of the US joint venture (up from 20%).”
William Hill Update
Last week, Caesars said it will dole out $3.69 billion in cash for William Hill, an offer the British bookmaker’s board is advising shareholders to accept.
It’s essentially a foregone conclusion that the buyer will divest William Hill’s European operations, a unit valued at $2 billion on the low end. Assuming Caesars is able to close the deal and sell the European business at that price point, it’d be getting more than $10 billion worth of value with William Hill USA for $1.7 billion, according to another analyst’s calculations.
Rumors are swirling competing bids for William Hill could emerge, but at this point, that’s just speculation. Caesars can compel the UK company to take its offer because if it doesn’t play ball, the Harrah’s operator will scrap its US agreement with the British betting house.
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