Digital business upside cited in buy rating for Caesars Entertainment
Jefferies Equity Research has issued a buy rating for Caesars Entertainment, citing its potential upside in the digital business.
Analyst David Katz, in a note to investors, said the announcement this week of two executives with Icahn Enterprises joining the Board of Directors is a positive for the shares.
“The Street debate on the shares has continued for the past couple of years over how best to capture value with current valuation at 6.3X 2026 earnings EBITDA,” Katz said. “We believe there is prospective value upside in the digital business once its earnings power is established, as is the case with the other segments of the business.”
The addition of Jesse Lynn and Ted Papapostolou, the general counsel and CFO of Icahn Enterprises, “appears amicable,” with Caesars CEO Tom Reeg welcoming the two and Carl Icahn commenting that he has “great respect” for Reeg and the Caesars management team, Katz said.
“He looks forward to working with Tom to maximize value for all shareholders, including by exploring strategic alternatives for Caesar’s underappreciated digital business,” Katz wrote.
Icahn mentioning Caesars’ “underappreciated” digital business is worth highlighting and reaffirms how 2025 is “one of the busiest activist investor years in gaming history,” Katz said.
“In our view, a prerequisite for a successful spin-off for Caesars’ digital business is for the company to establish an EBITDA trajectory, with the aspirational target remaining $500 million, although the timing to that level has shifted out from originally 2025,” Katz said. “Given Icahn’s past record of efficiency of value capture and the apparent amicable nature of his involvement, we take from the announcement incremental confidence in upside for the shares.”
Caesars should be in the digital business, given its industry-leading brand and loyalty program, Katz said. Jefferies’ view is that consumers in gaming and most industries require a mobile and land-based engagement.
“The land-based operators have met conflict with the Street over tolerance for the capital spent to build the necessary product and technology required to be successful in the US,” Katz said.
Some have exited the business (Wynn Resorts and Churchill Downs), and some have forged ahead in a variety of structures (MGM Resorts International, Penn Entertainment, Boyd Gaming, and Bally’s), Katz said.
“The decision for Caesars now is whether it can establish a value given its formative earnings power or whether it’s better served as a separate entity with independent strategies and resources. We have a slight leaning toward the latter.”
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