NEW YORK (TheStreet) -- Caesars Entertainment (CZR - Get Report) shares added 3.5% to their value in the past week but is this recent rally any indication it's time to consider getting back to Vegas with this company? The short answer is no, let's see why.
Despite the recent stock recovery, Caesars' shares are still down 36% since the beginning of the year. Even after accounting for the huge drop in its value, the company's enterprise value-to-EBITDA ratio is still relatively high at 14.3. In comparison, other leading sector companies such as Wynn Resorts (WYNN) and Las Vegas Sands (LVS) have a lower ratio of 13.8 and 12.4, respectively.
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The average hotel/gaming sector company has a ratio of 14.18. This means Caesars' current valuation is not only higher than its peers but also above the sector's average.Caesars is concentrated in North America, while Wynn and Las Vegas Sands have proprieties in Asia including Macau which continue to provide potential operating growth. READ MORE: Warren Buffett's Top 10 Dividend Stocks Alas, the current high valuation isn't the only issue. Caesars still has huge debt at $21.1 billion and a $3.5 billion deficit in its equity.
Moreover, Caesars is showing very modest revenue gains. In the second quarter, revenue rose by 3%, year over year. Despite this modest increase in revenue, its diluted loss per share reached $3.24 -- a $1.55 per share increase in its loss compared to the same quarter last year. Investors should consider other options for casinos and hotels companies and not hail Caesars. At the time of publication the author held no positions in any of the stocks mentioned. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage. READ MORE: 10 Stocks Carl Icahn Loves in 2014 TheStreet Ratings team rates CAESARS ENTERTAINMENT CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate CAESARS ENTERTAINMENT CORP (CZR) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 119.5% when compared to the same quarter one year ago, falling from -$212.50 million to -$466.40 million.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 25.55%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 81.06% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- CAESARS ENTERTAINMENT CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, CAESARS ENTERTAINMENT CORP reported poor results of -$22.05 versus -$11.12 in the prior year. This year, the market expects an improvement in earnings (-$4.70 versus -$22.05).
- The gross profit margin for CAESARS ENTERTAINMENT CORP is rather high; currently it is at 50.95%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -21.34% is in-line with the industry average.
- CZR's revenue growth has slightly outpaced the industry average of 5.6%. Since the same quarter one year prior, revenues slightly increased by 1.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- You can view the full analysis from the report here: CZR Ratings Report