Caesars Looking to Wring Value from Digital Unit, Says Analyst

Posted on: January 3, 2025, 05:49h. 

Last updated on: January 3, 2025, 05:49h.

Another analyst is speculating that Caesars Entertainment (NASDAQ: CZR) could make a move this year to extract value from its digital operations, which include Caesars Sportsbook.

In a new report to clients, Deutsche Bank analyst Carlo Santarelli said there’s a budding narrative that Caesars management is miffed by market participants ascribing inadequate value to the interactive business, which has recently pared losses and moved toward profitability. That dissatisfaction could compel  leadership to take action, though it remains to be seen what that could be.

Santarelli estimated that if Caesars’ digital unit can meet or beat the consensus forecast of 2025 revenue of $352 million while trading at 12.5x earnings before interest, taxes, depreciation, and amortization (EBITDA), the digital segment would trade at a deep discount to rival DraftKings (NASDAQ: DKNG) and be worth as much as $20.75 a share to Caesars share price. If that projection is anywhere close to accurate, it arguably confirms the notion that investors aren’t giving due to credit to the online segment based on Caesars stock closing at $32.51 today.

If the internet business is worth close that amount, it implies the operators’ brick-and-mortar operations are heavily discounted on the basis of this year’s adjusted earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR).

Given a little more than half of the EBITDAR from the core brick-and-mortar business stems from assets that are wholly owned, we view the trading multiple as artificially low and indicative of a sum-of-the-parts discount being applied by the market,” observed Santarelli.

Based on the analyst’s math, Caesars Digital is worth $4.4 billion, implying that if that figure or something close to it can be extracted in a corporate transaction, the move would go a long way toward creating value for shareholders and reducing the operator’s debt burden.

Caesars Digital Scuttlebutt Intensifying

Santarelli’s comments on Caesars potentially moving to unlock value from its digital operations arrived about a week after Truist Securities analyst Barry Jonas said a spinoff of that unit is possible this year.

Additionally, Caesars Sportsbook’s current market share likely isn’t enough to entice a prospective buyer to pay what the seller would be hoping to fetch.

Then there’s the lack of activity of on the iGaming legislative front. Caesars has solid positioning in that space, but with just seven states permitting that form of wagering and no more than speculation to suggest that figure will increase this year, would-be buyers might not be inclined to pay for hope.

Caesars Digital Rumors Are Old

Rumors pertaining to Caesars’ online operations have swirled for more than four years and the company itself has said it’d be open to spinning off the business, but it’s also expressed interest in retaining full ownership.

In a spinoff, Caesars could retain some equity in the online segment, though that would result in a lower post-transaction dollar figure flowing to the company. That could be a hedge because not retaining full ownership of the online unit comes with risks.

Notably, iGaming is a highly profitable, low-margin endeavor, and with more states possibly entering that fray, operators likely want full control of their internet units.