Eldorado Resorts Stock Stymied By Company Debt
Reno’s Eldorado Resorts was in the news earlier this year with the company’s pending merger with Caesars Entertainment. That deal is still moving through the regulatory process but it is expected to be finalized by next summer. Eldorado would be the principal after assuming $8.8 billion of Caesars’ debt. This is part of the $17 billion deal that included cash and stock.
In a post on Yahoo Finance from the financial analyst company Zacks, Eldorado faces a number of issues moving forward. As a result, Zacks is rather bearish on the company’s stock. Much of this stance is based on the most recent financial results.
How Is Eldorado Resorts Stock Stymied By Company Debt?
The Las Vegas gaming industry in general has hit a few bumps in the road lately. The casino gambling capital of the world is deriving more and more revenue from non-gaming entertainment options. Shopping, dining and live entertainment are on the rise. Gambling activity on its own has suffered some losses. Real money casino gambling is no longer the primary focus among the biggest resorts in Las Vegas these days.
Zacks noted that commercial gaming revenue in the US hit an all-time high in 2018 at $41.7 billion.
Outside pressure from the rest of the country has cut into Las Vegas over the past few decades. While gambling revenues have grown during this expansion, overall profits are down. This is due to the tremendous cost involved in new casino investments.
Eldorado Resorts draws most of its revenue and profit from Nevada. However, it owns and operates 26 gaming and entertainment properties across 12 states. Gambling still remains the main source of revenue. Hotel accommodations, restaurants, entertainment and other amenities are all utilized to attract gaming customers.
Las Vegas gaming companies have done a much better job at shifting revenue from gambling to those other profit centers. Eldorado’s casinos are spread across smaller markets and closer to urban centers. The company acquired nine new properties in 2018 at a cost of $1.2 billion. Within the past two years, the buying spree includes 19 of the company’s 26 properties. Eldorado’s total debt in 2016 was $800 million.
That ballooned to $3.6 billion at the end of last year. Add in this year’s mega deal with Caesars and investors should be concerned with the company’s total debt.
Going back over Zacks Consensus Earnings Estimate for the past several years, Eldorado has consistently missed the mark. The company’s share price took a big hit in the last two quarters of 2018. To the point where half the value was lost. Trading this year sparked a rally but future increases could be hard to come by.
Recent declines in earning estimates for 2019 and 2020 has caused Zacks to rank Eldorado Resorts #5 (Strong Sell). The Caesars’ deal is the driving force of poor stock ratings among several industry analysts. The current debt is a strong deterrent to the company’s ability to compete. Adding to the concerns is the overall downward forecasts for the gaming industry.