Caesars Entertainment (NASDAQ: CZR) may be exploring options to maximize value from its digital operations, including Caesars Sportsbook, according to Deutsche Bank analyst Carlo Santarelli. The company's management appears frustrated with the market's undervaluation of its interactive business, which has recently shown improved profitability.

Santarelli estimates the digital unit could be worth up to $20.75 per share, assuming 2025 revenue of $352 million and trading at 12.5x EBITDA. This valuation, approximately $4.4 billion, suggests significant unrealized value, considering Caesars' current stock price of $32.51.

The analyst's assessment indicates the company's brick-and-mortar operations are substantially undervalued, with more than half of the EBITDAR coming from wholly-owned assets. This suggests a sum-of-the-parts discount in the current market valuation.

This analysis follows Truist Securities analyst Barry Jonas's recent prediction that Caesars might spin off its digital unit in 2024. A spinoff appears more likely than a sale, as it would allow Caesars to retain some ownership while unlocking value for shareholders and reducing debt.

The digital unit faces some challenges, including:

• Limited market share in sports betting
• Slow expansion of iGaming legislation (currently only 7 states)
• The high profitability but low margins of iGaming operations

While discussions about monetizing Caesars' digital operations have persisted for over four years, the company has maintained flexibility in its approach, considering both full ownership and potential spinoff scenarios. Any decision will likely balance immediate value creation with long-term strategic benefits, particularly as the iGaming market continues to evolve.

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