Caesars Entertainment Corp (CZR)

[investora2z]

The fall yesterday was with increased volumes which was in line with the overall sentiment in the market. It has fallen about 33% from its 52 week high made in March, but still remains nearly 180% above the lows. Thus, the stock has done well for the investors in the short term. This is despite the fact that the company has continued to report losses since many years. So while the investors may not be complaining, it is not going to be too easy from here on. The growth in the stock has not been supported by improvement in fundamentals. The accumulated deficit is increasing and the net worth is negative. If the correction in the market runs deeper, then the possibility of a lot of profit booking in CZR exists. It is looking weak and is poised around crucial levels. Further, data shows that high levels of shorts are being maintained by traders. In addition, there is some news expected on the lawsuit filed by MGT Capital Investments (MGT) for patent infringement by CZR' subsidiary. The lawsuit has been filed against several casino companies and the potential claims lie between $300 million to $4.5 billion. Negative news on that may also put downward pressure on the stock in the short term. Fundamentally, the biggest worry is the huge debt of $21.56 billion and the consequential interest payout. Compared to a revenue of $8.5 billion and an operating margin of 10%, the leverage appears very high. The revenues have also fallen over the years. The expected growth in the market segment may help increase the revenues, but improving net margins is the key to success. All this appears to be extremely difficult considering the huge leverage and operating performance of the company. Positive surprises are required for the stock to regain momentum.