The Ratings Game: Caesars, SeaWorld downgraded on ‘waning’ confidence in ability to withstand looming recession

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Shares of Caesars Entertainment Inc. and SeaWorld Entertainment Inc. slumped Wednesday after downgrades from KeyBanc analyst Brett Andress, who cited growing concerns over the companies’ prospects as a potential economic recession looms.

Andress, who covers consumer-related leisure facilities, cut his ratings on casino operator Caesars and theme park operator SeaWorld to sector weight after being overweight on Caesars for the past 18 months and on SeaWorld for at least the past 2 1/2 years.

Caesars stock

lost 1.5% in afternoon trading, paring earlier losses of as much as 6.0% to a 2-year low of $36.41 in intraday trading. SeaWorld’s stock

shed 2.3%, but was down as much 5.2% at a 17-month intraday low of $40.08.

Andress acknowledged that he could very well be late with the downgrades, but said they could provide “dry power for when the consumer is closer to bottoming.”

Caesar shares already tumbled 45.5% year to date and SeaWorld’s stock has sold off 42.5%, while the S&P 500 index

has declined 14.4%.

Andress believes Caesars has “the most relative downside potential” of the gaming companies he covers if the current economic slowdown worsens into a global-financial-crisis type recession. That’s because of Caesars’ high debt-leverage profile and similar free-cash-flow burden, “as GGR [gross gaming revenue] sustaining at/around current levels feels pretty critical to de-leveraging bull cases.”

For SeaWorld, Andress said it was a “relative call on destination exposure,” as he believes leisure travel could take a hit in the second half of the year and beyond. Although the company’s earnings, before interest, taxes, depreciation and amortization (Ebitda) has expanded the past several years, “when does the strong pushing on cost cuts and pricing eventually result in a reset?”

He also downgraded YETI Holdings Inc.
Hasbro Inc.

and Vista Outdoor Inc.

to sector from overweight, but YETI shares gained 1.4% and Vista’s stock rose 0.6%, while Hasbro shares slipped 0.2%.

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