Although Caesars Entertainment (NASDAQ: CZR) has a $5.28 billion market value, an analyst believes that its digital division could be worth more on its own.

Texas Capital analyst David Bain presented five enterprise value/earnings before interest, taxes, depreciation, and amortization (EBITDA) scenarios for Caesars Digital in a recent report to clients. Bain pointed out that the operator's online betting division has an implied market value of $6.25 billion at the lowest multiple of 12.5x.  Caesars Digital has an implied value of $9.6 billion at a multiple of 19.2x, which is the average for pure-play digital comparables Rush Street Interactive (NYSE: RSI), Flutter Entertainment (NYSE: FLUT), and DraftKings (NASDAQ: DKNG).

"At even 12.5x CZR’s ~$500 million forward digital guidance, CZR’s digital segment would be worth $940 million+ more than CZR’s current market capitalization,” observes Bain. “We continue to believe CZRs management and Board are reviewing certain corporate actions to demonstrate its digital value should its stock price not reflect such by sometime next year.”

Both Caesars' management and investors, including Carl Icahn, agree that the digital segment's strength isn't reflected in the stock price.  Caesars Digital had a 24% increase in revenue to $343 million in the second quarter, with $80 million in earnings before interest, taxes, depreciation, and amortization (EBITDA).

Caesar's Digital Spinoff May Be a Revolutionary Debt Reduction

Analysts and investors have long maintained that the stock price does not accurately represent advances and increased profitability in the digital sector, so developments in the interactive unit could fuel greater calls for the parent firm to spin that business off.

Additionally, selling a piece of the internet subsidiary to public investors could yield major benefits for the parent company, which is heavily indebted (net debt of $11.29 billion at the end of the second quarter).  Even in that case, the proceeds might significantly lower the parent company's liabilities, although Bain admits that "there are probably too many omnichannel benefits or complications" for Caesars to sell off more than half of the interactive business.

“Using 80% of $6.25 billion in proceeds (before fees), or a $5 billion reduction in 2026E net debt less 80% of potential digital EBITDA, results in a 1.4x reduction in traditional net leverage and over 1 turn of traditional EV/EBITDA valuation,” notes the analyst.

According to Bain, Caesars would earn $56 million in "theoretical" yearly savings by not fully controlling the internet business and enhance its annual free cash flow by $350 million if it were to pay off $5 billion in debt at 7% interest rates.

iGaming May Offer Prime Caesars Digital a Deal

While everyone, including Caesars Sportsbook, lags far behind DraftKings and Flutter's FanDuel in the online sports betting market, the higher-margin iGaming industry is more competitive and has a more evenly distributed market share than sports betting.

Caesars has made significant advancements in the field of online casinos, which may strengthen the argument for splitting off the digital division.

“Notably, CZR’s iCasino/iGaming market share gains continue, driven by its improved Caesars Palace app (recently ranked third amongst all operators in Eiler’s and Krejcik app testing), Horseshoe brand launch, and better utilization of casino hosts (omnichannel benefit),” concludes Bain.

With a price objective of $59, he ranks Caesars as a "buy," suggesting that the stock can more than double from its current level.