On a day of broad-based strength among gaming equities, Caesars Entertainment (NASDAQ:CZR) is one of the leaders of the resurgence. That’s on news that CEO Tom Reeg bought shares in the casino operator, and as the stock earns some kudos from analysts.
In late trading, shares of the Harrah’s operator are higher by more than 11 percent on above-average volume. That’s after a regulatory report published after the close of US markets Tuesday indicates Reeg bought 10,000 shares of the stock at a price of $71.37. The chief executive officer now owns 224,506 shares of his employer’s stock, according to a Form 4 filing with the Securities and Exchange Commission (SEC).
While company directors and executives may sell stock for any number of reasons — not all of which are negative — including a need to raise cash or to diversify personal portfolios, insider buying is generally viewed in a positive light. That’s because the investment community believes those with intimate knowledge of a firm only buy shares for one reason: because they think the stock will appreciate.
In Reeg’s case, his purchase of Caesars equity comes as the casino stock was down 24.9 percent year-to-date entering today.
Analyst Adulation for Caesars
Another catalyst for the move in Caesars stock today is some praise from research firm Jefferies, which adds the gaming name to its Franchise Picks list.
We believe the fundamental environment for Las Vegas and regional casinos is expected to sustain its recent strength in demand, pricing and profitability,” said Jefferies in a note to clients.
The bank also applauds Caesars for cash-generating asset divestments. That’s including the pending sale of William Hill’s international business to 888 Holdings, and the yet-to-be-announced sale of a Las Vegas Strip property. The latter transaction could command $2 billion to $3 billion, based on recent Strip property sales, according to analysts. Jefferies adds concerns about Caesars’ digital gaming spending are overblown.
“The current concerns that the company is over-investing in its digital business expansion, or that the sale of its excess assets to 888 Holdings may not close, should be proven to be incorrect in the NT, and view the recent weakness in the shares as an opportunity,” said the bank.
When the company delivered fourth-quarter results last month, Reeg said it’s planning to significantly reduce its traditional media spending for its Caesars Sportsbook operations, noting the operator reached desired goals sooner than expected.
Caesars Cash Flow Could Impress
One of the long-running themes analysts are highlighting with Caesars is management’s ability to generate free cash flow. The expectations on that front imply the stock is currently undervalued.
Jefferies notes that as Caesars’ digital gaming business reaches profitability next year, it’s possible the operator generates $8 to $10 a share in free cash. That could drive the stock to $100, implying upside of 43 percent from the March 8 close.
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