Caesars Entertainment stock, which has traded in the low $30s by the end of 2024, has an expected price target of $56 in 2025 as it unlocks value from its digital operations, according to an investor note from Deutsche Bank.

Although Deutsche Bank’s Las Vegas Strip outlook for 2025 is measured with “moderate top-line and margin contraction that meets expectations,” analyst Carlo Santarelli said he believes Caesars’ competition ” are slightly better than peers and perform it relatively well”. 2025 between strip operators.

Santarelli expects Caesars Strip properties to benefit from increases in average daily room rates from both its Versailles at Paris Las Vegas and its investments in the Coliseum Tower at Caesars Palace. Flamingo Las Vegas’ investment in food and beverage will support double-digit growth of more than $200 million in annual EBITDAR.

There is also a strong group outlook for 2025. And a new high-limit slot area at Caesars Palace has delivered strong early results.

“While the aforementioned items should act as a healthy tailwind, we are forecasting a 2% year-over-year decline in property EBITDAR in 2025, while consensus metrics forecast 1% year-over-year growth.” indicating,” Santarelli said. “As such, we think the setup is not entirely optimal.

Several years of “relatively meaningful project spending” in regional markets culminated in the opening of a permanent facility in Danville, Virginia in 2024, the opening of a Caesars New Orleans hotel and property upgrades earlier in the quarter, according to Deutsche Bank. .

Santarelli believes that incremental property EBITDAR from these assets in 2025, which they estimate to be in the range of $75 million, is likely sufficient to offset the various effects of competitive pressures.

Those pressures include Horseshoe Bluffs and Horseshoe Bluffs Run with competition from Nebraska for most of 2025. Horseshoe Hammond and Horseshoe Juliet with Wind Creek Illinois’ inaugural competition in November; Horseshoe Bossier Live debuts with competition from the first quarter of 2025! Bossier; and Horseshoe Indianapolis with competition from Terre Haute Casino Resort.

“If we assume that Danville, New Orleans, and, to a lesser extent, Horseshoe Columbus (Nebraska) are covered by the aforementioned competition, regional performance in 2025 is likely to prevent the decline of the broader portfolio. Capacity is likely to boil over, Santarelli said, with trends continuing through 2022.

Santarelli said momentum is building around the narrative that the lack of credit for digital businesses could result in some sort of strategic action to unlock value. If Caesars is able to achieve the consensus matrix forecast of $352 million for 2025 and the segment could trade at 12.5 times 2025 EBITDA, compared to DraftKings, which trades at 22 times 2025, the midpoint of EBITDA guidance. So the business is worth $20.75 per share. Santarelli said that stripping out the $4.4 billion in equity value related to the digital segment from the enterprise value would mean the core business, all weighed down by debt, is trading at 6.8 times 2025 adjusted EBITDAR.

“With the core brick-and-mortar business generating slightly more than half of its EBITDAR from assets that are wholly-owned, we artificially underestimate the trading multiple and indicate that applying the segment discount What’s going on in the market.”

While free cash flow dynamics and free cash flow-based valuations have been talking points around Caesars’ story for some time, with the development pipeline complete, 2025 will be “the first net harvest year for the company in some time.” . Deutsche Bank expects Caesars to benefit from more than $250 million in interest savings, $200 million in capital expense savings, and $170 million in EBITDAR growth, as incremental digital segment EBITDAR offsets models in both the Las Vegas and regional markets. is more than lacking.

“With minor offsets arising from taxes and rent, we see approximately $550 million of additional discretionary free cash flow available to Caesars in 2025 compared to 2024,” Santarelli said. “We believe this incremental free cash flow provides the option to continue redemption efforts or further repay debt. Additionally, we project a 16.6% 2025 equity free cash flow yield (excluding project costs) Consider attractive.
Santarelli said the $56 price target is based on a SOTP approach in which they apply various multiples to their estimated 2025 owned and leased EBITDAR, excluding icasino and sports betting contributions. They believe their target multiples are consistent with peer and historical trading multiples.

“From here, we subtract 2025 earnings, traditional net debt and rent obligations, which we capitalize at 8.0x,” Santarelli said. “Finally, we make value adjustments for the seller’s note related to icasino and sports betting EBITDA and global series of poker sales. Our $56 price target implies that the stock is 11.9 on our 2025 FCF per share forecast. Can trade on % FCF yield.