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Investors Bet BIG on Caesars (CZR) IPO: Beware! Says Macke


I don't give advice. I'm just here to offer an incremental data point or spark a thought that helps you better manage your portfolio. You can think of me how you wish but know that I speak to you as though you were a friend.

In that collegial spirit I'll offer this: If a friend tried to buy into the Caesars Entertainment (CZR) IPO, which late this morning opened for trading on the Nasdaq, I would tackle them, and then nicely take them aside for a heart-to-heart talk about self-loathing masked as investing.

I may be over emotional on this point but only because I've spent two hours of my life I will never get back trying to analyze the value of Caesars shares, only to find that they have no value whatsoever. To start guessing at Caesars for yourself, I invite you to pick a metric, any metric, and compare it to casino blue chip Wynn Resorts (WYNN).

Wynn has $3 billion in debt and posted $5.3 billion in revenues in 2011, up over 25% over 2010. Caesars has $20 billion in junk-rated debt supported by roughly $9b in 2011 (fourth Q not yet reported), slightly down from 2010.

Wynn gets almost 80% of its revenues from Macau, China where the casino industry grew 40% in 2011 from 2010. The balance of its revenues come from Las Vegas which had a tailwind growth rate of 6.5% last year.

Caesars rakes in roughly 20% of its top line from Vegas. The balance comes from Atlantic City (20%), Louisiana/Mississippi (17.5%), Iowa/Missouri (12%), Illinois/Indiana (17%) and "Other Nevada" (read: Tahoe) 5%.

Hopelessly levered, shrinking revenues, no growth prospects, it's an IPO squeeze that stinks like Mobster-era Vegas. CZR could have manufactured $18 million in chips and they would have had more intrinsic value than these shares. I could rail against this thing all day. In fact, I probably will but I'll spare you my rants, since we're friends.

According to legend, the real Julius Caesar made a slave trail him during military parades, reminding Caesar that he was not a God. If you confuse yourself with the almighty, you can buy and hold CZR to keep you humble. That's the nicest thing I can say about the stock.

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