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Eldorado Resorts: Panic, Too Much Leverage, But It May Work Out

Mar. 05, 2020 4:40 PM ETEldorado Resorts, Inc. (ERI)16 Comments


  • Coronavirus is making investors fearful of getting involved with this hotel and casino entertainment company.
  • Eldorado Resorts is making a huge acquisition that could be very rewarding for shareholders.
  • This is a very speculative opportunity with a lot of moving parts. But there is a reasonable possibility it may work out.
  • Looking for a helping hand in the market? Members of Deep Value Returns get exclusive ideas and guidance to navigate any climate. Get started today »

Investment Thesis

Eldorado Resorts (NASDAQ:ERI) is looking to acquire a huge company, Caesars (CZR), which will make Eldorado one of the biggest gaming players in the US.

With Coronavirus picking up pace, investors are concerned about its impact on this over-leveraged company, and how badly its revenues are likely to fair if the number of customers falls dramatically.

Also, more bad news is likely to percolate in the coming weeks, but for now, investors are steadfastly selling first and asking questions later.

With so much uncertainty in the air, investors are not to wishing to be left holding this investment in the event of a recession.

However, if Eldorado does succeed in vaguely reaching its target of $10 per share of free cash flow, today's valuation of less than $40 per share could make for a very attractive investment.


The Big Acquisition

I'm never a fan of highly acquisitive companies.

The problem with these sorts of companies is that they never know when to stop. They pile on debt, buy a company, attempt to squeeze some synergies, which don't always transpire to be available and don't stop until it's often too late.

Furthermore, the size of the acquisition can only go in one direction, up. Indeed, the acquisition of Caesars by Eldorado is close to ludicrous.

Eldorado's market cap is close to $3 billion, and it's buying up Caesars with an enterprise value of close to $17 billion: very roughly $8.5 billion of cash and stock, plus the assumption of Caesars debt of around $9 billion.

Having said that, Eldorado states that the after-tax consideration is only $14.1 billion:

Source: Slide 4

What will be left for Eldorado to acquire next? Will it move its ambitions Internationally?

The Carrot for Shareholders

Source: Slide 5

Assuming that the acquisition

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