Posted on: January 18, 2024, 02:58h.
Last updated on: January 18, 2024, 02:58h.
Red Rock Resorts (NASDAQ: RRR) traded slightly higher Thursday after the stock and corporate debt were lauded by analysts.
With the support of the new Durango Casino & Resort in Southwest Las Vegas, there could be upside ahead for shares of Red Rock as the operator continues tapping into the Las Vegas locals segment — its core constituency, according to Barclays. The research firm initiated coverage of the gaming stock with an “overweight” rating.
RRR is a pure play on the attractive Las Vegas Locals gaming market with an under-appreciated competitive moat and development pipeline that should collectively drive EBITDA growth above regional peers over the short, medium and long term,” according to the bank.
Barclays added that Red Rock’s property holdings (it owns all of the real estate on which its casinos reside and more) and robust pipeline provide ballast for a low risk/high reward scenario. The bank also said the stock is inexpensive and that it’s poised to benefit from a more favorable interest rate environment.
Durango, Tribal Deal Could Be Boons for Red Rock
Just over a month has passed since Durango opened, but the venue could be an important contributor to Red Rock’s top and bottom lines. The new casino resort is an area of Las Vegas that’s rapidly growing, but isn’t saturated with casinos.
“Durango will soon be contributing to cash flow and the North Fork project is a potentially lucrative future development. While management promises considerable demand, Durango’s progress to peak returns likely will require 2-3 years. In the meantime, we are maintaining our full year 2023 forecast,” observed Gimme Credit analyst Kim Noland.
Recent federal approval of Red Rock’s management agreement with the North Fork Rancheria tribe of Mono Indians for the development of a casino in Madera, Calif. may currently be underappreciated as it relates to Red Rock stock, but it could be a longer-ranging catalyst for the shares and bonds, argues Noland.
“Upon completion (construction is expected to take 15-18 months), the North Fork project will comprise a 100,000 square foot casino with over 2,000 slot and video poker machines and table games as well as several dining options. The multi-year management agreement should more than offset the revenue lost when the Graton management agreement terminated,” added the analyst.
She has an “outperform” rating on the Red Rock bonds maturing in 2031 — yields on which recently dropped 110 basis points, meaning prices rose.
Red Rock Real Estate Real Catalyst
Red Rock owns a treasure trove of real estate. It owns all the property on which its casino hotels and resorts stand and hundreds of acres of undeveloped land. In aggregate, the operator’s real estate holdings are likely worth close to the company’s market capitalization of $5.31 billion, indicating those assets aren’t adequately reflected in the share price.
“We are constructive on RRR’s portfolio and current developable landbank, which we think should provide a runway for growth for many years,” noted Macquarie analyst Chad Beynon.
He rates Red Rock “outperform” with a $58 price target.