- The net worth of Caesars Entertainment is US $95.0 based on 2 Stage Free Cash Flow to Equity.
- The lowest price for Caesars Entertainment shares is 49%.
- The current price of CZR is US$66.27 which is 30% below the stock price
In this article we will consider the price of Caesars Entertainment, Inc. (NASDAQ:CZR) by taking expected future earnings and discounting them from today’s price. We will use the Discounted Cash Flow (DCF) model for this scenario. There is not much to it, although it may seem very complicated.
We generally believe that the value of a company is the present value of the money it will generate in the future. However, DCF is only one statistical metric among many, and it is not without flaws. For those who are interested in learning about equity analysis, the Simply Wall St analysis here may be of interest to you.
Check out our latest analysis of Caesars Entertainment
Step Through the Count
We use what is known as a 2-stage model, which simply means that we have two different periods of growth for a company’s revenue. In most cases, the first phase is the highest, and the second phase is the lowest. To get started, we need to consider the next ten years of cash flows. Where possible we use expert estimates, but when these are not available we subtract FCF from the final estimate or quoted price. We think that companies with increasing free cash flow will slow their decline, and that companies with increasing free cash flow will see their growth slow, in the meantime. We do this to show that growth tends to slow down more in the early years than it does in later years.
We usually assume that a dollar today is worth more than a dollar in the future, so we discount the value of these futures from their estimated value in today’s dollars:
10-year free cash flow (FCF) forecasts.
|Leveraged FCF ($, Million)||$1.26 billion||$1.73b||US$2.09b||$2.41b||$2.68 billion||US$2.90b||US$3.09b||$3.25 billion||$3.39b||$3.51b|
|Value Growth Rate||Researcher x3||Expert x2||is 20.87%||It’s @ 15.20%||and 11.24%||is 8.46%||is 6.52%||and 5.16%||It’s @ 4.20%||and 3.54 %|
|Current Value ($, Million) Discount @ 14%||US $ 1.1k||US$ 1.3k||US$ 1.4k||US$ 1.4k||US$ 1.4k||US$ 1.3k||US$ 1.2k||US $ 1.1k||US$1.0k||US $946|
(“Est” = estimated FCF amount compared to Simply Wall St)
10-Year Present Value of Cash Flow (PVCF) = US$12b
After calculating the present value of the future cash flows in the first 10 years, we need to calculate the Terminal Value, which calculates all the future cash flows beyond the first phase. For several reasons, a fixed growth rate is used which cannot exceed the growth rate of the country’s GDP. In this case we have used the 5-year average of the 10-year government yield (2.0%) to estimate future growth. As with the 10-year ‘maturity’, we discount future cash flows to present value, using a discount rate of 14%.
High Price (TV)= FCF2032 × (1 + g) ÷ (r – g) = US$3.5b× (1 + 2.0%) ÷ (14%– 2.0%) = US$30b
Current Terminal Value (PVTV)= TV / (1 + r)10= US$30b÷ ( 1 + 14%)10= US$8.0b
Total cost, or cost of equity, is the sum of future cash flows, which is currently US$20b. The last step is to divide the value by the number of shares left. Based on the stock price of US$48.3, the company appears to be undervalued at a 49% discount to where the stock is currently trading. Remember, however, that this is just a calculation, and like any other complex method – garbage, garbage disposal.
The above calculation depends mainly on two assumptions. The first is the discount rate and the other is the cash flow. You don’t have to accept these inputs, I suggest you read them yourself and play with them. DCF does not take into account the size of the company, or the company’s future prospects, so it does not provide a complete picture of how the company will perform. Given that we are looking at Caesars Entertainment as a shareholder, the cost of equity is used as the discount rate, rather than the cost of capital (or the average cost of capital, WACC) that calculates debt. For this calculation we have used 14%, which is based on a beta of 2.000. Beta is a measure of a stock’s volatility, relative to the market as a whole. We get our beta from companies that are comparable to companies around the world, with a margin set between 0.8 and 2.0, which is the right level for a sustainable business.
SWOT analysis of Caesars Entertainment
- No major strengths have been identified for CZR.
- Paying interest on the loan is not properly covered.
- Forecasts will reduce the damage next year.
- They have a sufficient cash flow for more than 3 years depending on the financial situation.
- The best value based on the P/S ratio is its refined value.
- Internal purchases within the last three months.
- Debt is not well covered by cash flow.
Valuation is only one part of the investment in building your financial concept, and it cannot be the only analysis you look at a company. It is not possible to find a null calculation with the DCF model. It’s a good idea to use cases and different ideas and see how they affect the value of the company. If a company is growing at a different rate, or if its equity value or risk-free rate changes significantly, the results may look very different. Why is the median price higher than the current unit price? For Caesars Entertainment, we’ve put together three things you should check out:
- Health Health: Does CZR have a good schedule? Check out our free site analysis and six simple checks on key factors such as strength and risk.
- Leadership:Have insiders been increasing their stakes to take advantage of market sentiment on CZR’s future prospects? Check out our management and board reviews and information on CEO compensation and governance.
- Some High Quality Options: Do you like a good rounder? Check out our linked list of top stocks to find out what you might be missing!
PS. The Simply Wall St app calculates the stock price for every stock on the NASDAQGS every day. If you want to find the calculations for other products check here.
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This article by Simply Wall St is more general in nature. We provide reviews based on historical data and expert forecasts using unbiased methods and our articles are not intended to be financial advice. It does not make recommendations to buy or sell any stock, and does not take into account your goals, or financial situation. We want to bring you long-term analytics driven by meaningful data. Note that our analysis may not be influenced by recent company announcements or stock prices. Simply Wall St does not have a position in any of the listed stocks.