Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Caesars Entertainment Inc (CZR, Financial). The stock, which is currently priced at 43.93, recorded a gain of 8.12% in a day and a 3-month decrease of 20.34%. The stock's fair valuation is $70.68, as indicated by its GF Value.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- 1. Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- 2. GuruFocus adjustment factor based on the company's past returns and growth.
- 3. Future estimates of the business performance.
If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Caesars Entertainment (CZR, Financial): A Potential Value Trap?
Despite its seemingly attractive valuation, certain risk factors associated with Caesars Entertainment should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.62. These indicators suggest that Caesars Entertainment, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Understanding the Altman Z-score
Before delving into the details, let's understand what the Altman Z-score entails. Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Company Overview: Caesars Entertainment Inc (CZR, Financial)
Caesars Entertainment includes about 50 domestic gaming properties across Las Vegas and regional markets. Additionally, the company hosts managed properties and digital assets. Caesars' U.S. presence roughly doubled with the 2020 acquisition by Eldorado. Caesars' brands include Caesars, Harrah's, Tropicana, Bally's, Isle, and Flamingo. Also, the company owns the U.S. portion of William Hill, a digital sports betting platform.
Caesars Entertainment's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Caesars Entertainment's Altman Z-score reveals Caesars Entertainment's financial health may be weak, suggesting possible financial distress:
The Retained Earnings to Total Assets ratio provides insights into a company's capability to reinvest its profits or manage debt. Evaluating Caesars Entertainment's historical data, 2021: -0.05; 2022: -0.09; 2023: -0.07, we observe a declining trend in this ratio. This downward movement indicates Caesars Entertainment's diminishing ability to reinvest in its business or effectively manage its debt. Consequently, it exerts a negative impact on its Z-Score.
Conclusion: Caesars Entertainment (CZR, Financial) as a Value Trap
Considering the low Altman Z-Score and the declining trend in the Retained Earnings to Total Assets ratio, it seems that Caesars Entertainment (CZR) might be a potential value trap. While the stock appears undervalued, the financial health of the company indicates potential risks. Therefore, investors should exercise caution and conduct thorough due diligence before making an investment decision.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
