Hail Caesars! But 'Et Tu, Debt?'
Feb 8th 2012 7:52PM
Updated Feb 8th 2012 7:58PM
Caesars Entertainment (NAS: CZR) , formerly known as Harrah's Entertainment, has rejoined the public market after just over five years in the hands of private equity.
In trading today, the stock has already risen 79%, making it a wildly successful IPO, depending on how you judge such things.
One IPO I wouldn't buy
I've identified this as a terrible potential IPO in the past and now that it's here the details look even worse. Only 1.8 million shares were offered to the market at $9 per share in this IPO and right now it looks like there's a lot more demand than supply, something that might soon change. Twenty-two million shares will soon hit the market as investors look to cash out on the positions that were built while the company was in private hands.
Financially, the picture gets even worse for Caesars. At a time when competitors Las Vegas Sands (NYS: LVS) , Melco Crown (NAS: MPEL) , and Wynn Resorts (NAS: WYNN) are stacking cash in Macau, Caesars is posting big losses in the U.S.
In the most recent quarter, the company reported a slight decline in revenue, to $2.25 billion, and a $164 million loss. The loss is about the same size as a year ago, showing little progress in improving profitability. As a comparison, Las Vegas Sands had a net income of $320.1 million last quarter and Wynn made $258.3 million in the quarter.
The problem is the company's massive debt load, not dissimilar to the other Strip giant, MGM Resorts (NYS: MGM) . In the third quarter, Caesars reported $198.2 million in operating profit but spent $450.3 million on interest expense. The company would have to more than double operating profit to break even or pay down billions of dollars of debt -- $19.6 billion, as of September 30.
A quick profit today may be great for investors buying the IPO, but it isn't a good bet for retail investors. Caesars has shown zero ability to make a profit and has a level of debt that should make investors run for the exits. I'm confident enough that I'm making an underperform call on My CAPS.
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At the time this article was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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