Caesars Entertainment (CZR)

Hotel and casino entertainment company Caesars Entertainment (NASDAQ:CZR) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 1.9% year on year to $2.79 billion. Its GAAP loss of $0.54 per share was significantly below analysts’ consensus estimates.

Company Overview

Formerly Eldorado Resorts, Caesars Entertainment (NASDAQ:CZR) is a global gaming and hospitality company operating numerous casinos, hotels, and resort properties.

Casino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can't do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.

Competitors in the gaming and hospitality sector include MGM Resorts (NYSE:MGM), Las Vegas Sands (NYSE:LVS), and Wynn Resorts (NASDAQ:WYNN).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Caesars Entertainment grew its sales at an incredible 36.7% compounded annual growth rate. Its growth beat the average consumer discretionary company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Caesars Entertainment’s recent performance shows its demand has slowed significantly as its revenue was flat over the last two years. Note that COVID hurt Caesars Entertainment’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

We can dig further into the company’s revenue dynamics by analyzing its three most important segments: Casino, Hotel, and Dining, which are 57.1%, 15.6%, and 17.3% of revenue. Over the last two years, Caesars Entertainment’s Casino (Poker, Blackjack) and Dining (food and beverage) revenues averaged year-on-year growth of 30.4% and 14.2%. On the other hand, its Hotel revenue (overnight bookings) averaged 47.5% declines.

This quarter, Caesars Entertainment grew its revenue by 1.9% year on year, and its $2.79 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2.9% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below the sector average.

Caesars Entertainment’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 20.5% over the last two years. This profitability was top-notch for a consumer discretionary business, showing it’s an well-run company with an efficient cost structure.

This quarter, Caesars Entertainment generated an operating profit margin of 17.5%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although Caesars Entertainment’s full-year earnings are still negative, it reduced its losses and improved its EPS by 8.6% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

In Q1, Caesars Entertainment reported EPS at negative $0.54, up from negative $0.73 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Caesars Entertainment’s full-year EPS of negative $1.09 will flip to positive $1.18.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Caesars Entertainment has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.1%, lousy for a consumer discretionary business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Caesars Entertainment to make large cash investments in working capital and capital expenditures.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Caesars Entertainment historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 11.3%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Caesars Entertainment’s ROIC has increased significantly over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Caesars Entertainment reported $884 million of cash and $12.3 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $3.7 billion of EBITDA over the last 12 months, we view Caesars Entertainment’s 3.1× net-debt-to-EBITDA ratio as safe. We also see its $2.35 billion of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

While revenue was in line, adjusted EBITDA beat. The stock traded up 1.5% to $28.36 immediately after reporting.

Updated: June 14, 2025 at 10:43 PM EDT

When considering an investment in Caesars Entertainment, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Caesars Entertainment isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its declining EPS over the last five years makes it a less attractive asset to the public markets. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its low free cash flow margins give it little breathing room.

Caesars Entertainment’s EV-to-EBITDA ratio based on the next 12 months is 1.4x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $42.87 on the company (compared to the current share price of $25.69).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.