CZR stock: Should You Bet on a Las Vegas Recovery With Caesars Stock?

August 5, 2020

Introduction

I like to look into gambling industry and hotel industry, MGM and HST and PEB, CZR stocks. 

CZR stock

Here is the article. 

A tough time to operate a casino

COVID-19 has been kryptonite for the hospitality industry as hotels around the world stand vacant, and many casinos had to close their doors entirely. This left companies like Caesars and Eldorado with some of the worst financial performances in their histories.

First-quarter revenue for Caesars and Eldorado decreased 13.6% and 25.6% year over year, respectively. Both companies noted that the first two months of the year went well, but things took a turn for the worst in March. To reduce overhead costs and cash burn, Caesars furloughed the majority of its employees, and Eldorado reduced pay for its employees and management team.

There is still a great deal of uncertainty regarding how quickly the hospitality and tourism industry will bounce back. The new Caesars, even with its increased scale and reach, still depends on tourists for most of its revenue, and the business model fails if tourists feel uncomfortable visiting casinos.

These issues aren't unique to Caesars. Las Vegas Sands reported that second quarter revenue was down 97%. Other competitors such as MGM Resorts are facing the most difficult operating environment in their history, and it is almost completely out of their control. Realistically, until there is a COVID-19 vaccine or the pandemic has widely been declared over, casinos won't see their businesses fully recover.

Should investors bet on a recovery?

Even in unprecedented times like today, the merger between Caesars and Eldorado could prove to be extremely successful in the long run if the company hits its growth and cost-cutting targets. The combined company should be more profitable and have a stronger financial footing than the two companies had independently. Assuming business comes back, Caesars will be in a position to generate substantial cash flow and improve its balance sheet.

Caesars will reports its second quarter results after the market close on Aug. 6, and management is likely to share its outlook for the rest of 2020 at that time. The bad news is already well-known, and investors who do believe in an eventual recovery for the gambling and hospitality industry should consider the opportunity presented by the newest top dog among U.S. casino operate.