Posted on: November 8, 2023, 03:18h.
Last updated on: November 8, 2023, 03:18h.
Red Rock Resorts’ stocks edged higher following the release of decent third-quarter results, providing a glimmer of hope on an otherwise downbeat day for gaming equities.
The parent company of Station Casinos reported earnings of 60 cents a share on $411.6 million in revenue for the third quarter, beating analyst expectations of 39 cents on sales of $412.2 million. Despite worries about the delayed opening of Durango Casino and Resort, analysts remain mostly constructive on the stock.
There are concerns about potential adverse effects on regional gaming equities due to macroeconomic headwinds. However, some analysts believe that scenario is already priced into shares of Red Rock, and the company could prove resilient due to ongoing strength in the Las Vegas locals segment.
According to Stifel analyst Steven Wieczynski, near-term hesitancy to buy RRR shares may exist due to macro related reasons. However, he believes that spending/visitation trends will remain relatively healthy across the LV Locals market. He rates Red Rock a “hold” with a price target of $47.
Red Rock Benefits Include Balance Sheet Strength
Unlike Strip operators like Caesars Entertainment and MGM Resorts International (NYSE: MGM), Red Rock offers a different approach that minimizes volatility. As Stifel analyst Wieczynski noted, Red Rock’s balance sheet is “clean” relative to its peers.
Red Rock is also outpacing rivals when it comes to converting earnings before interest, taxes, depreciation, and amortization (EBITDA) into free cash flow.
Furthermore, favorable Las Vegas-specific macro tailwinds and regional economic factors could underpin long-term growth for Red Rock stock.
“We view the economic tailwinds that drove outsized growth in the greater Las Vegas economy ahead of COVID-19 as structural in nature and thus expect them to stay healthy, which should put RRR’s EBITDA flow through in a much stronger position moving forward,” added Wieczynski. “Unemployment trends in Las Vegas continue to be favorable as well as population growth, which are a positive for RRR.”
Durango Could Be 2024 Catalyst for Red Rock
Although the opening of Durango was pushed back, it’s expected to be a near-term growth driver for Red Rock. According to CBRE analyst John DeCree, the new casino resort could bolster Red Rock’s free cash flow and speed up the operator’s deleveraging efforts.
DeCree also noted that Red Rock’s ownership of all the real estate on which its casinos reside, as well as hundreds of acres of unused land throughout Las Vegas, offer favorable volatility characteristics relative to peers.