Red Rock Resorts Price Target Raised on Las Vegas Locals Strength

Posted on: January 24, 2024, 12:09h. 

Last updated on: January 25, 2024, 01:04h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Red Rock Resorts (NASDAQ: RRR) continues to be favored by sell-side analysts, another of whom has raised the price target on the casino operator.

Red Rock Resorts
Red Rock Resort in Summerlin, Nevada. An analyst raised his price target on the stock today. (Image: Las Vegas Weekly)

Citing strength in the Las Vegas locals segment and potential upside to be accrued from the new Durango Casino & Resort in Southwest Las Vegas, Deutsche Bank analyst Carlo Santarelli boosted his price forecast on Red Rock to $62 from $54. The new target implies upside of 16% from Tuesday’s close.

We believe 4Q23 LV locals segment performance is likely to surpass Consensus and drive an adjusted EBITDA beat for RRR. Further, we believe 2024 Consensus forecasts appear achievable, if not beatable, should underlying market fundamentals remain largely firm,” wrote Santarelli in a note to clients on Wednesday.

The $750 million Durango has been open for nearly seven weeks, and is widely believed to be off to a strong start. Durango is home to 73,000 square feet of gaming space, a sportsbook, 2,000 gaming machines, and 40 table games, as well as an array of eateries. Some analysts see the new casino resort as a potential thorn in the side of competing Las Vegas locals’ establishments, including Boyd Gaming’s (NYSE: BYD) Orleans and Suncoast.

Durango Impressing in Early Innings

Some market observers are concerned that the new Durango could pilfer business from Red Rock’s eponymous casino hotel in Summerlin. Executives from the gaming company acknowledge that might be an issue in Durango’s infancy, but believe Red Rock devotees will likely eventually return to that venue.

Those concerns could be allayed by the Durango’s location. The Southwest corner of Las Vegas is enjoying significant population growth, but it’s not yet saturated with casinos. That fact was a large part of the thesis behind Durango’s location, and for many residents in that area, the new gaming venue is the closest to where they live.

“We believe trends at Durango have remained firm and have been supported by continued LV locals market strength. Accordingly, we are reaffirming our Buy rating, raising our price target, and raising our estimates,” added Santarelli.

Of the 13 analysts covering Red Rock, nine rate the stock “strong buy” or “buy.” The consensus price target on the shares is $55.38, indicating there’s room for upward revisions.

Red Rock is a Catalyst-Rich Story

Shares of Red Rock are higher by 5.07% over the past week, and there are near-term catalysts on the horizon that could support additional gains.

Those include next week’s release of December gross gaming revenue (GGR) figures from the Nevada Gaming Control Board (NGCB), which will include three weeks of activity at Durango, as well as Red Rock’s fourth-quarter earnings report on February 7. The cautionary tale is that the operator missed sales estimates in the second and third quarters of 2023. Still, there are reasons to like the stock.

“Our Buy rating is reaffirmed, with a near-term catalyst into 4Q23 earnings, on February 7, 2024, coupled with our belief that: 1) RRR has the strongest organic growth pipeline in gaming, 2) the LV locals market remains desirable within the broader regional drive-to gaming landscape, and 3) valuation remains compelling, within the context of current sector valuations, given the real estate ownership,” concluded Santarelli.