Shares of Caesars Entertainment (NASDAQ: CZR), which has already been in a long slump, plummeted once more on Tuesday following a sell-side analyst's downgrade.

Jefferies analyst David Katz reduced his rating on the gaming company to "hold" from "buy" in a recent report to clients. He cited a number of reasons, including the operator's underwhelming third-quarter performance and the possibility that brick-and-mortar casino revenues had not yet reached a trough.

"We do not relish a downgrade for CZR with the shares down 40% year-to-date, but our reasons for upside have progressively diminished. Land-based gaming earnings have not found a bottom and may not have yet,” observes Katz. “Digital gaming growth expectations have also diminished, which defers the possibility of meaningful value capture.”

Katz lowered his price objective for Caesars from $39 to $22, suggesting an increase of roughly 10% from the stock's current level.

Caesars might have to raise money

Caesars may have to raise money due to its $11.9 billion in debt and bad credit ratings.  Because of its large debt levels and poor credit ratings, it would undoubtedly be subject to hefty interest rates if it had to do so.

Katz predicts rises of only 1.8% and 2.2%, respectively, so "confidence is low" that Caesars may see Las Vegas and regional casino profits before interest, taxes, depreciation, and amortization (EBITDA) climb at a notable clip this year and in 2026.  He claims that remodeling properties is a way to potentially increase profits, but it would cost Caesars money.

If the business is able to come to an agreement with VICI Properties (NYSE: VICI) on the regional casino master lease, it may also have to deal with expenses.  Both companies' shareholders have focused on this issue, which has caused an overhang on both stocks.

“A solution to the elevated rent levels in the VICI regional master lease is probable, but likely to cost CZR capital, one way or another. In the end, we believe the likelihood the set-up gets worse for CZR is equal to the prospects for an upside surprise, with the outcome requiring outside forces,” adds Katz.

Caesars May Not Be Saved by Digital Technology

The idea that Caesars will split off its digital division, which includes Caesars Sportsbook, in order to create value for shareholders is one of the most well-known rumors in gaming circles this year.  The management has previously stated that it feels the share prices don't fairly represent the progress made in the web business.

Although there is a view that Caesars Digital may earn substantial profits for the parent company in a spinoff, this thesis has been undermined by forecasts that the company will report lower-than-expected EBITDA next year and because of what Katz refers to as "elusive" structural hold.

“Digital gaming growth expectations have also diminished, which defers the possibility of meaningful value capture,” concludes the analyst.