Caesars Entertainment Corporation CZR is set to report second quarter 2015 results on Aug 4, 2015. Last quarter, it posted a negative earnings surprise of 87.58%. It has a four-quarter average negative earnings surprise of 83.82%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Caesars Entertainment (formerly known as Harrah’s Entertainment) has not been able to post profits for a 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 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, which includes the announcement of a restructuring plan, the company has not been able to accomplish the goal. Moreover, the costs related to its efforts to improve the top and bottom lines are hurting profits. We expect results to remain soft in the soon-to-be-reported quarter as well.
Nevertheless, the company is heavily spending on renovation to boost traffic. With an eye on high-growth markets, it is 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 in the soon-to-be reported quarter.
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 in the to-be reported quarter.
Investments in new and exciting hospitality amenities and ongoing investments in Caesars Interactive Entertainment (CIE) are reaping benefits. Caesars Interactive Entertainment should continue to post strong performance driven by strong organic growth in its social and mobile games business as a result of the company’s focus on monetization.
On the other hand, the company is making efforts to cut expenses and undertake cost saving initiatives, which is helping it to improve margins. The combination of efforts to increase revenue and further reduce spending should aid margin expansion in the soon-to-be reported quarter.
Earnings Whispers?
Our proven model does not conclusively show that Caesars Entertainment is likely to beat earnings this quarter. This 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 8 cents.
Zacks Rank #3 (Hold): Caesars Entertainment has a Zacks Rank #3 (Hold). Though 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 That Warrant a Look
Here are some companies in the consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Guess' Inc. GES has an earnings ESP of +6.67% and a Zacks Rank #1.
Norwegian Cruise Line Holdings Ltd. NCLH has an earnings ESP of +1.35% and a Zacks Rank #2.
SeaWorld Entertainment, Inc. SEAS with an earnings ESP of +10% has a Zacks Rank #2.
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