Sell: Caesars Entertainment
How do you lose money in the casino business? Well, the first way is by operating properties mostly in the U.S. Caesars Entertainment (CZR) owns and manages 42 casinos in the U.S. and Canada, including nine in Las Vegas. While its revenues have been flat in the first nine months of the year, its loss from continuing operations before tax was $2 billion — a 39% bigger loss than in the first nine months of 2012. CZR simply has too many properties that aren’t performing. Its Las Vegas casinos are the least of its worries.
The second way you lose a huge amount of money in the casino business is by racking up a huge amount of debt, which your cash flow can never hope to repay. At the end of the third quarter, CZR had long-term debt of $21.3 billion, resulting in $1.7 billion in interest payments or $2.3 billion on an annualized basis. If we subtract its direct operating expenses and SG&A overhead, there’s $1.7 billion left to pay $2.3 billion in interest.
That’s why CZR has spun off its most promising interactive assets into Caesars Acquisition Company (CACQ). Shielded from the massive debt, the online gaming could have some upside. Personally, I wouldn’t own either stock, but CACQ is the better of the two if you’re crazy enough to play with fire.