Small cap casino stock Caesars Entertainment Corp (NASDAQ: CZR) surged 27.3%, meaning investors might want to take a closer look at it verses the Market Vectors Gaming ETF (NYSEARCA: BJK) – basically the casino ETF.
What is Caesars Entertainment Corp?
Beginning in Reno, Nevada more than 70 years ago, Caesars Entertainment Corp calls itself the world's most diversified casino entertainment company. Caesars Entertainment Corp's resorts operate primarily under the Harrah's®, Caesars® and Horseshoe® brand names plus the company owns the World Series of Poker® and the London Clubs International family of casinos. However, investors should be aware that Caesars Entertainment Corp does not have a presence in Macau which has helped other US casino operators to offset the weakness in their US operations.
What Should Scare Investors Away From Caesars Entertainment Corp?
The last time I wrote about Caesars Entertainment Corp was just after an IPO which involved only 1.8 million shares priced at $9 a share. However, I noted there was something like 22 million more shares being held by private investors no doubt looking for an exit in part due to the company being far from profitable – something that is still true today. In fact, Caesars Entertainment Corp has reported revenues of $8,586.70M (2012), $8,573.30M (2011), $8,553.20M (2010) and $8,907.40M (2009) along with net losses of $1,497.50M (2012), $687.60M (2011) and $831.10M (2010) plus net income of $827.60M (2009). So so much for the old saying that the house always wins!
I also noted that Caesars Entertainment Corp was loaded up on debt – which it still is because at the end of last year, the company had $1,757.50M in cash but $2,588.30M in current liabilities and $20,532.20M in long-term debt. A balance sheet like that should scare most long-term investors away as it appears the private equity people loaded the company up with debt before flinging back to the public.
Finally, there is the fact that Indian casinos have seemingly sprung up everywhere and moves to legalize gambling or online gambling just about everywhere by cash strapped states which might further limit the ability of traditional brick and mortar casinos to always win.
However and on Tuesday, Caesars Entertainment Corp surged after announcing plans to form a new company, Caesars Growth Partners LLC, which will take over the company's online business, Caesars Interactive Entertainment and its Planet Hollywood Resort & Casino in Las Vegas, among other assets. Caesars Entertainment Corp will retain a majority ownership of the new company while private equity firms Apollo Management LP and TPG Capital LP may invest up to $250 million in it. Existing shareholders will also have the right to buy a stake in Caesars Growth Partners LLC and the company expects it could receive up to $1.2 billion from existing shareholders.
Stock Performance: Caesars Entertainment Corp vs. the Casino ETF
On Tuesday, small cap Caesars Entertainment Corp surged 27.3% to $15.90 (CZR has a 52 week trading range of $4.52 to $18.37 a share) for a market cap of $1.99 billion plus the stock is up 129.8% since the start of the year, up 27% over the past year and up 11.7% since February 2012 according to Google Finance. I am not sure if that is really counting the stock’s 71% surge on its first day of trading when those lucky enough to score $9 a share managed to ride them to the $15 level.
And while there are several small cap casino stocks that Caesars Entertainment Corp can be compared with, Market Vectors Gaming ETF might be the easiest best bet to compare it with as its up 13.9% since the start of the year, up 9.6% over the past year and up 7.3% over the past five years:
Traders or investors who are also technicians might want to take a closer look at the following technical charts for both Caesars Entertainment Corp and the Market Vectors Gaming ETF:
The Bottom Line. Despite the announcement about Caesars Growth Partners LLC, Caesars Entertainment Corp is still loaded up on debt, is not profitable, lacks a presence in Asia and is loaded up on debt – meaning investors who want to bet on casino stocks might want to take a closer look at the Market Vectors Gaming ETF or other casino stocks as they may offer better odds.