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What Awaits Caesars Entertainment (CZR) in Q1 Earnings?

Caesars Entertainment Corporation CZR is set to report first-quarter 2016 results on May 5, after market close. Last quarter, the casino operator posted a substantial negative earnings surprise of 128.57%.

The company has posted a negative average earnings surprise of 6.88%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Caesars Entertainment has not been able to record profit for a long time. The company has missed the Zacks Consensus Estimate in every quarter, except one, since the second quarter of 2013. The losses were the result of high debt levels which drove interest expenses.

Despite following a restructuring plan, the company has not been able to improve its debt position. In fact, costs related to these initiatives have hurt profits and we expect the same to affect the results in the to-be-reported quarter.

Nevertheless, the company is spending heavily on renovation to boost traffic. It is enhancing hospitality and entertainment assets in the high-growth markets, such as Las Vegas. Meanwhile, Las Vegas has been witnessing strong visitation pattern and high occupancy rates in the recent past, mainly aided by improving employment rate in the U.S. Given the optimism surrounding tourism in this region, we expect the properties to boost first-quarter revenues.

Investments in new and exciting hospitality amenities and the ongoing investments in Caesars Interactive Entertainment (“CIE”) are reaping significant benefits. CIE should continue to perform strongly driven by solid organic growth in its social and mobile games business.

On the other hand, the company is making efforts to cut expenses through cost saving initiatives, which has started yielding results. These efforts should continue to aid margin expansion in the to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Caesars Entertainment is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP is 0.00%.

Zacks Rank: Caesars Entertainment carries a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some stocks in the broader consumer discretionary sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Cinemark Holdings, Inc. CNK, with an Earnings ESP of +2.13% and a Zacks Rank #2.

Central Garden & Pet Company CENT, with an Earnings ESP of +3.39% and a Zacks Rank #2.

PVH Corp. PVH, with an Earnings ESP of +0.70% and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
CINEMARK HLDGS (CNK): Free Stock Analysis Report
 
CENTRAL GARDEN (CENT): Free Stock Analysis Report
 
PVH CORP (PVH): Free Stock Analysis Report
 
CAESARS ENTERTN (CZR): Free Stock Analysis Report
 
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