Caesars Entertainment stock, which has traded in the low $30s to end 2024, has a projected price target of $56 in 2025 as it unlocks value from its digital operations, according to an investor note from Deutsche Bank.
Though Deutsche Bank’s Las Vegas Strip outlook for 2025 is “measured with modest top-line and margin contraction underpinning the expectations,” analyst Carlo Santarelli said they believe comparisons for Caesars stack up “a little better than peers and make it a relative outperformer” in 2025 amongst the Strip operators.
Santarelli expects Caesars’s Strip properties to benefit from average daily room rate accretion from both its investments in its Versailles at Paris Las Vegas and Coliseum Tower at Caesars Palace. The Flamingo Las Vegas investments in food and beverage will help drive double-digit growth on the more than $200 million of annual EBITDAR.
There’s also a strong group outlook for 2025. And a new high-limit slot area at Caesars Palace has produced strong early results.
“While the aforementioned items should serve as healthy tailwinds, we are forecasting a 2% year-over-year property EBITDAR decline in 2025, while consensus metrix forecasts imply 1% year-over-year growth,” Santarelli said “As such, the setup isn’t entirely optimal, in our view.”
Several years of “relatively meaningful project spend” in regional markets came to an end in 2024 with the opening of the Danville permanent facility in Virginia, the Caesars New Orleans hotel opening, and property upgrades earlier in the quarter, according to Deutsche Bank.
Santarelli believes the incremental property EBITDAR from these assets in 2025, which they estimate to be in the $75 million range, is likely enough to offset the various impacts from competitive pressures.
Those pressures include Harrah’s Council Bluffs and Horseshoe Bluffs Run, with competition from Nebraska for the majority of 2025; Horseshoe Hammond and Harrah’s Joliet with competition from the November opening of Wind Creek Illinois; Horseshoe Bossier with competition from the first quarter of 2025 opening of Live! Bossier; and Horseshoe Indianapolis with competition from Terre Haute Casino Resort.
“If we assume the tailwinds from Danville, New Orleans, and to a much lesser extent Horseshoe Columbus (Nebraska) are offset by the aforementioned competition, regional performance in 2025 is likely to boil down to the ability for the broader portfolio to buck the declining trends that have lingered since 2022,” Santarelli said.
The momentum is building around the narrative that the lack of credit for the digital business could result in some form of strategic action to unlock the value, Santarelli said. If Caesars is able to achieve the consensus metrix forecast for 2025 of $352 million and the segment can trade at 12.5 times 2025 EBITDA relative to DraftKings, which trades at 22 times 2025 the midpoint of EBITDA guidance, the business is worth $20.75 per share. Extracting the $4.4 billion of equity value related to the digital segment from the enterprise value would imply yjsy the core business, burdened with all the debt, is trading at 6.8 times 2025 adjusted EBITDAR, Santarelli said.
“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.”
While free cash flow dynamics and free cash flow-based valuation have been talking points around the Caesars story for some time, with the development pipeline complete, 2025 will be the “first pure harvesting year for the company in some time.” Deutsche Bank expects Caesars to benefit from over $250 million of interest savings, $200 million of capital-expenditure savings, and $170 million of EBITDAR growth, as incremental digital segment EBITDAR more than offsets modelled declines in both Las Vegas and the regional markets.
“With slight offsets stemming from taxes and rent, we see nearly $550 million of incremental discretionary free cash flow available for Caesars in 2025 relative to 2024,” Santarelli said. “We believe this incremental free cash flow provides optionality to continue buyback efforts or further pay down debt. Moreover, we view the 16.6% 2025 equity free cash flow yield (excluding project spend), as attractive.”
Santarelli said the $56 price target is based on a SOTP approach in which they apply differing multiples to their 2025 estimated owned and leased EBITDAR, excluding the contribution from icasino and sports betting. They believe their target multiples are consistent with peer and historical trading multiples.
“From here, we extract 2025 earnings, traditional net debt and the rental obligations, which we capitalize at 8.0x,” Santarelli said. “Lastly, we make value adjustments for the icasino and sports betting EBITDA and the seller note related to the World Series of Poker sale. Our $56 price target implies the shares can trade at an 11.9% FCF yield on our 2025 FCF per share forecast.”
