Published on: September 19, 2024, 06:05h.
Last modified on: September 19, 2024, 06:05h.
On Wednesday, the Federal Reserve made a significant decision to lower interest rates by 0.5%, marking the first rate cut in four years. This move has generated optimism among capital-intensive casino operators, particularly Red Rock Resorts (NASDAQ: RRR), for a potentially extended positive market performance.
According to a report by Deutsche Bank analyst Carlo Santarelli, Red Rock, the operator of Green Valley Ranch, is identified as one of the gaming companies poised to benefit the most from the Federal Reserve’s monetary easing measures. While Santarelli recognizes potential uncertainties related to the upcoming presidential election that could affect the stock price, he sees opportunities for Red Rock in the current market climate.
Santarelli highlighted how lower interest rates may accelerate the development of Red Rock’s casino hotel in the Inspirada community in Henderson, Nevada. This could also support the expansion plans at the Durango Casino & Resort in Southwest Las Vegas. Lower borrowing costs could play a significant role in driving these growth initiatives for the company.
The anticipated $120 million expansion at Durango and the $75 million enhancements at Green Valley Ranch in 2025 further demonstrate the correlation between Red Rock’s activities and the Federal Reserve’s interest rate policies.
Significance of Lower Rates for Red Rock
Lower interest rates offer added advantages to Red Rock beyond its financial implications. With all of its venues located in Las Vegas, the operator stands to benefit from lower borrowing costs that could stimulate the local housing market and provide relief to consumers.
Santarelli expressed optimism about the impact of rate cuts on housing and continued growth in the Las Vegas locals market.
Key demographics in the Las Vegas locals segment, including employees of rival gaming companies and construction workers, underscore Red Rock’s potential to capitalize on lower interest rates and market trends.
Santarelli concluded by highlighting Red Rock’s attractive valuation and strong development pipeline within the gaming industry, offering significant potential for growth.
Tribal Casino Partnership Enhances Red Rock’s Position
Despite being primarily seen as a Las Vegas-focused company, Red Rock’s management agreement for the North Fork Mono Casino & Resort in California adds another dimension to its investment case.
Construction has commenced on the tribal casino, with an expected opening in 2026. Santarelli projects annual management fees of $40 million to $50 million once the project stabilizes, providing additional value to Red Rock’s stock.
Santarelli also mentioned Red Rock’s financial support to the tribe for construction financing, emphasizing the potential returns the company could see in the near future.