Shares of Caesars Entertainment, Inc. (CZR Quick QuoteCZR - Free Report) have gained 26.1% in the past three months compared with the industry’s 9.7% growth. The company benefits from pent-up consumer demand, strong digital segment performance and improved marketing capabilities. Also, the focus on sports-betting expansion and property development bodes well.

Earnings estimates for 2023 have moved north to $4.14 per share from 24 cents per share in the past 30 days, depicting analysts' optimism over the company’s growth potential.

However, increased operating expenses, competition pressures and construction-related disruptions remain headwinds.

Let us discuss the factors that highlight why investors should retain the stock for now.

Factors Driving Growth

Improved Occupancy Bode Well: The company continues to benefit from robust occupancy. During second-quarter 2023, occupancy in Las Vegas grew 100 basis points year over year to 97.6%. Attributes such as strong leisure and casino guest demand, the return of international guests and a solid events calendar added to the positives. Caesars Entertainment revealed that it began witnessing the pre-COVID return of conventions and groups to Las Vegas. The company is optimistic about booking trends, witnessing increased bookings for group and convention room nights. It expects the return of the group and convention business and entertainment offerings to drive incremental demand in the Las Vegas market.

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Solid Caesars Digital Performance: During the second quarter, revenues from Caesars Digital came in at $216 million compared with $152 million reported in the prior year quarter. During the quarter, sports betting hold improved 180 basis points year over year, and iCasino volume increased 27% year-over-year. The company stated benefits from targeted promotional investment and a lower level of marketing within its existing customer base. Moving ahead, the company focuses on sports betting and online casino expansion (through increased state legalization), new product launches and customer adoption to drive growth.

Digital Initiatives: Increased focus on digital initiatives bodes well. During the second quarter of 2023, the company emphasized certain tech enhancements to boost product offerings and drive better customer engagement. This includes the rollout of the new iCasino product Caesars Palace online (in multiple states), testing of its in-house player account management system (anticipated to roll out in 2024) and transitioning sports betting operations in Nevada to its Liberty tech stack.

Meanwhile, the company is optimistic about the rollout of the net native iOS Sportsbook app. Solid performance feedback buoyed by faster loading speeds, improved stability and enhanced development speed add to the positives. To drive growth, the company emphasizes product enhancements, including cash-out speed, customer service, parlay, and alternative line offerings.

Expansion Efforts: The company is inclined to expand in new markets to drive growth. It announced a partnership with the Eastern Band of Cherokee Indians to build and develop Caesars Virginia. Also, it stated plans to expand into Nebraska by developing a Harrah’s casino and racetrack.

During the second quarter of 2023, the company opened temporary gaming facilities at Danville, VA and Columbus, NE and reported strong customer demand with respect to the same. Also, strong contributions from Horseshoe Lake Charles (reopened in December 2022) added to the positives. The company is optimistic about the progress made on property developments and anticipates it to deliver strong returns (on project CapEx) in the upcoming periods.

Concerns

An increase in operating expenses is likely to impact the company’s profit negatively. During the second quarter, food and beverage expenses came in at $258 million compared with $242 million reported in the prior-year quarter. Hotel expenses during the quarter came in at $143 million compared with $134 million reported in the prior-year quarter. Going forward, the company intends to monitor the economic situation to gauge the impacts of inflation and interest rate hikes. For 2023, our model predicts food and beverage and hotel expenses to rise 5.4% and 11.4%, respectively, on a year-over-year basis.

Meanwhile, the company has been witnessing increased competition associated with new casino resorts opening in regional markets. Also, construction disruption from renovation projects has impacted visitation. Moving ahead, the company anticipates the challenges to persist for some time.

Zacks Rank & Key Picks

Caesars Entertainment currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Consumer Discretionary sector are as follows:

Royal Caribbean Cruises Ltd. (RCL Quick QuoteRCL - Free Report) sports a Zacks Rank #1. RCL has a trailing four-quarter earnings surprise of 28.5% on average. Shares of RCL have gained 135.6% in the past year.

The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates a rise of 54.5% and 180.3%, respectively, from the year-ago period’s levels.

Trip.com Group Limited (TCOM Quick QuoteTCOM - Free Report) flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 147.9% on average. Shares of TCOM have increased 55% in the past year.

The Zacks Consensus Estimate for TCOM’s 2023 sales and EPS indicates a rise of 104.9% and 537.9%, respectively, from the year-ago period’s levels.

Skechers U.S.A., Inc. (SKX Quick QuoteSKX - Free Report) sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 39.1% on average. Shares of SKX have increased 26.2% in the past year.

The Zacks Consensus Estimate for SKX’s 2023 sales and EPS indicates a rise of 8.7% and 42%, respectively, from the year-ago period’s levels.