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Caesars Lands on Morgan Stanley High Conviction List

Caesars Entertainment (NASDAQ:CZR) made the cut on a short list of stocks highlighted by Morgan Stanley as offering stout near-term appreciation potential.

In advance of first-quarter earnings season, the bank released a group of equities it believes will outperform over the next few weeks as profits improve on a year-over-year basis. Caesars is one of six names on the “high conviction earnings” list, one of just two from the consumer discretionary sector and the only gaming name.

Our analysts believe that one or more imminent events will drive the share price materially over the next 15-60 days,” according to Morgan Stanley. “For each of these stocks, our analyst has high conviction in a view that diverges from the Street’s, and expects a near-term event to drive the stock as the market’s view moves closer to ours.”

Last week, analyst Thomas Allen lifted both Caesars and rival MGM Resorts International (NYSE:MGM) — the two largest operators on the Strip — to “overweight” ratings, citing improving conditions in the US gaming hub. He boosted his price target on the Harrah’s operator to $113 from $92.

Caesars Entering Earnings Spotlight

The gaming company reports results for the January through March period on May 4 after the close of US markets.

Analysts expect Caesars lost $1.84 a share on revenue of $1.67 billion in the first three months of the year. That compares with a loss of $2.25 on sales of $473.07 million in the same period of 2020 — a time frame marked by the initial wave of coronavirus closures that slammed the gaming industry. Over the past 30 days, three analysts upwardly revised first-quarter estimates on the Paris operator.

Caesars stock, which recently joined the S&P 500, is higher by nearly 421 percent over the past 12 months. Some market observers take that as a sign the name is pricing in recovery on the Strip. On the fourth-quarter earnings call, CEO Tom Reeg expressed plenty of optimism, noting that Strip bookings were trending to the upside, highlighting strength in January and February visitation trends.

Underscoring Caesars’ status as a play on both government stimulus and rising coronavirus vaccination levels, many of the company’s first-quarter bookings were made at least a month in advance. That could be a sign tourists are increasingly comfortable with travel and are anxious to return to Las Vegas.

What Else to Listen For

It remains to be seen what other issues management discusses on May 4. But analysts and investors will certainly want some update on Caesars’ cost-cutting and margin expansion efforts following last year’s merger with Eldorado Resorts. Along those lines, rumors recently surfaced on social media that the gaming company is raising cocktail prices at its Strip venues.

Some update on the acquisition of sportsbook operator William Hill – a deal drawing some acrimony in the hedge fund community – is likely because that transaction is slated to close in the current quarter.

That purchase is integral to Caesars’ efforts to cement its status as a force in the fast-growing iGaming and online sports wagering segments.

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