Red Rock Resorts (NASDAQ: RRR) reaffirmed to investors and analysts its expectation to allocate between $375 million and $425 million this year, with approximately $275 million to $300 million categorized as invested capital.
A significant portion of this budget will focus on the ongoing expansion of the Durango Casino & Resort in South West Las Vegas, as well as upgrades to Green Valley Ranch and Sunset Station. Despite facing some construction delays at Durango—which is quickly becoming one of the company’s flagship properties—Red Rock reports that the Durango North expansion is progressing well and is expected to complete in the latter half of next year.
“The ongoing performance of our existing properties, alongside the substantial residential development occurring in Southwest Las Vegas, enhances our confidence in this expansion and its long-term growth potential,” stated CFO Stephen Cootey during a conference call with analysts. “Importantly, Durango is validating our capital allocation strategy, and we believe this expansion will fortify the property’s market position, capture more of the locals market, increase market share, and provide significant long-term value for our shareholders.”
The project updates coincided with Red Rock’s earnings report for the second quarter. The gaming operator experienced slight drops in revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA), with part of the decline attributed to construction interruptions.
Red Rock Advances at GVR and Sunset Station
Turning our attention to Green Valley, where Red Rock has initiated a significant renovation in 2023, the estimated disruption this quarter will amount to roughly $3 million, but positive progress is evident.
“RRR is making headway on the comprehensive hotel renovation. The west tower and the convention area have reopened, with the east tower expected to resume operations in September,” noted Barry Jonas, an analyst at Truist Securities.
Following this, Red Rock will focus on enhancing the casino floor at Green Valley Ranch and expanding the property’s food and beverage offerings. At Sunset Station, completed upgrades are already yielding positive results, with even more amenities expected to launch before the year’s end.
“RRR will move on to implement the next development phase, which includes improvements to movie theaters, a bingo relocation, and transforming buffet space into a steakhouse featuring high-limit gaming areas. This phase is expected to conclude by 2027, with an estimated investment of $87 million (~$140 million total for the property),” Jonas commented regarding Sunset Station.
Wall Street’s Positive Outlook on Red Rock
Despite Red Rock’s lukewarm performance in the second quarter, Wall Street remains optimistic, highlighting the stock as one of the premier options for investors interested in the thriving Las Vegas locals market. Jonas has assigned a “buy” rating to the gaming stock, targeting a price of $75, notably higher than its current closing price of $64.27.
Analyst Steven Wieczynski from Stifel shares a similar positive sentiment towards Red Rock, rating the shares as a “buy” with a $74 price target, praising the company’s ownership of its real estate and the vibrancy of the Las Vegas locals segment.
“We see a compelling long-term case for owning RRR based on (1) sustained strength emerging from the LV locals market driven by robust demographics, (2) potential market share growth from superior assets, (3) an untapped land bank providing the company with options, and (4) an excellent growth profile across our gaming coverage,” the analyst observed.