Caesars Entertainment Corporation CZR is set to report first quarter 2015 results on May 6, 2015. Last quarter, it posted a negative earnings surprise of 74.51%. Meanwhile, the company has delivered negative earnings surprises over the last four quarters. Let’s see how things are shaping up for this announcement.
Factors to Consider
Caesars has not been able to post profits for a very long time. This gaming company has missed the Zacks Consensus Estimate consistently since the second quarter of 2013. The losses reflect the company’s heavy debt load, which has pushed up interest expenses.
Caesars Entertainment (formerly known as Harrah’s Entertainment) was taken private in 2008 by private equity firms Apollo Global Management and TPG Capital in a leveraged buyout of around $30 billion. However, it launched an initial public offering in 2012 and began trading again.
Despite its efforts to curtail debt, the company has not been able to accomplish the goal. As a result, we expect profits to remain soft in the soon-to-be-reported quarter.
Nevertheless, the company is heavily spending on renovation to boost traffic. With an eye on the high-growth markets, it is also enhancing its hospitality and entertainment assets. An improving visitation pattern in Las Vegas would help the company as it is concentrating on renovation and promotion of its properties there. Given the optimism surrounding tourism in this region, we expect the properties to generate improved revenues, going forward.
Additionally, after the closure of the Showboat property in Atlantic City, the company has been making promotional and marketing efforts to drive footfall at its other properties. Meanwhile, Horseshoe Baltimore, a casino resort that was opened in Aug 2014, got an overwhelming response and is expected to add to the top line.
On the other hand, the company is making efforts to cut expenses and increase EBITDA through a variety of operational initiatives. These efforts would contribute to profits in the upcoming quarters.
Earnings Whispers?
Our proven model does not conclusively show that Caesars Entertainment is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: The Earnings ESP stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of $1.53.
Zacks Rank #3 (Hold): Caesars Entertainment has a Zacks Rank #3 (Hold). Though a Zacks Rank #1, 2 or 3 increases the predictive power, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are a few companies in the gaming industry and broader consumer discretionary sector worth considering which, as per our model, have the right combination of elements to post an earnings beat this quarter:
Isle of Capri Casinos, Inc. ISLE with an Earnings ESP of +2.44% and a Zacks Rank #1 (Strong Buy).
Vail Resorts Inc. MTN with an Earnings ESP of +0.53% and a Zacks Rank #2 (Buy).
Skullcandy, Inc. SKUL with an Earnings ESP of +7.69% and a Zacks Rank #2.
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