Caesars faces challenges as it goes public

Market players who want to buy a casino had best make sure they know the nature of the game going in.

Caesars Entertainment Group, one of the largest casino owners, went public Feb. 8 with splash. The stock climbed 71% on its first day of trading — a day on which the broad market rose about 0.2%. The company is controlled by private equity interests, which bought it for $17.1 billion in April 2007 when it was called Harrah’s Entertainment.

This month, the public was offered only about 1.4% of the shares outstanding, a tiny percentage for an initial public offering. But more shares are likely to be available soon. Existing investors (read private equity interests) holding 27.8% of the shares have registered that stock for resale. Most of those shares can be sold now, and the rest after 180 days.

Even at the closing price of Caesars on its first day of trading, the company is valued at less than 12% of what the current owners paid five years ago. According to the company’s prospectus, total debt is $19.6 billion. That’s more than 16 times total stockholders’ equity.

With numbers like these, don’t expect mutual funds to be big buyers of Caesars. As a group, the 7,029 domestic open-end mutual funds tracked by Morningstar are not large holders of gaming stocks. Fewer than 10% of them own Wynn Resorts, the most popular fund holding in the group.

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