Shares of Caesars Entertainment (NASDAQ: CZR) are down 26.24% so far this year amid declining tourism on the Las Vegas Strip. The state of the gaming stock is so dire that it may return to its April "Liberation Day" lows if the selling pressure isn't stopped quickly.

Some analysts and research firms continue to be positive about the Harrah's operator despite those concerning facts. In the fourth quarter, Morningstar listed Caesars as one of 33 "undervalued" equities that investors should think about purchasing. Given that Caesars' start to the last three months of 2025 has been dismal, as evidenced by an 8.79% decline over the last week, one could argue that perspective should come with a warning label.

"Consumer cyclical stocks have underperformed the market in 2025. The sector entered the fourth quarter trading 8% above our fair value estimate. About 40% of the stocks that we cover in the sector are trading in the 4- and 5-star range, says Morningstar sector director Erin Lash,” according to Morningstar.

The research firm's fourth-quarter undervalued list included three consumer discretionary firms, with Caesars being the only one from the gaming sector.

Multiple Fronts of the Caesars Stock Hit

Visitors and gross gaming revenue (GGR) in Las Vegas fell this year, as has been extensively reported. This is bad news for Caesars, the second-largest operator on the Strip. The problems with the gaming stock are far from over.

More recently, the rise of prediction markets has cast doubt on the company's exposure to online sports betting. Although pure-play sportsbook operators lack Caesars' buffer in the form of land-based casinos, the stock has been thrown out with the bathwater due to rumors of skyrocketing football traffic on Kalshi.

Caesars's digital division, which includes online sports betting, has been growing, so those headlines are relevant to the company and its investors. Additionally, it is seen as a plum asset with spin-off potential, which may significantly lower the operator's debt. Caesars may have to retain its interactive business in-house for the time being due to pressure on sports wagering stocks.

Caesars Stock: An "Attractive" Prospect

Some experts think Caesars has a value case despite the aforementioned obstacles. The company is trading at a significant discount to the research firm's $61 fair value estimate, according to Morningstar's Lash, who describes it as "an attractive investment opportunity." That is around 2.5 times the closing price of the stock today.

Since Lash predicts a substantial drop in the operator's debt/earnings before interest, taxes, depreciation, and amortization (EBITDA) levels in the coming years, debt reduction is crucial to the long-term Caesars case.

“Management has a record of generating cash flows from strategic tie-ups to pay down debt rather than boosting shareholder returns via dividends or share repurchases,” concludes the analyst. “And we think it will continue to employ the same tactics; we forecast debt/adjusted EBITDA will fall to around 4 times (from our forecast of 6.4 times in 2025) over the next few years.”