An analyst claims that although Caesars Entertainment (NASDAQ: CZR) has a $5.28 billion market value, its digital division might 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. He noted that the operator's internet betting unit 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 DraftKings (NASDAQ: DKNG), Flutter Entertainment (NYSE: FLUT), and Rush Street Interactive (NYSE: RSI).

"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.”

Investors like Carl Icahn and Caesars' management agree that the stock price does not accurately reflect the company's dominance in the digital market. Caesars Digital's sales increased by 24% to $343 million in the second quarter, with $80 million in earnings before interest, taxes, depreciation, and amortization (EBITDA).

The Digital Spinoff of Caesars Could Reduce Debt Epically

Since analysts and investors have long maintained that the stock price does not accurately represent advancements and growing profitability in the digital sector, gains in the interactive unit may fuel further calls for the parent firm to spin that business off.

Additionally, selling a piece of the internet subsidiary to public investors could result in major benefits for the parent company, which had a net debt of $11.29 billion at the end of the second quarter. 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, even in that case, the proceeds might significantly lower the parent company's obligations.

“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, the operator's yearly free cash flow would increase by $350 million if Caesars eliminated $5 billion in debt at 7% interest rates. It would also achieve $56 million in "theoretical" annual savings by not wholly controlling the internet operation.

iGaming May Prepare Caesars Digital for a Purchase

While everyone, including Caesars Sportsbook, lags behind DraftKings and Flutter's FanDuel by significant margins in the online sports betting market, the higher-margin iGaming space is more competitive and has a more divided market share than sports betting.

Caesars has made significant headway in the area 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 $59 price objective, he ranks Caesars as a "buy," suggesting that the stock can more than double from its present levels.