Red Rock Resorts Stock Primed for Upside, Says Analyst

Posted on: April 1, 2024, 10:25h. 

Last updated on: April 1, 2024, 10:29h.

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

Shares of Red Rock Resorts (NASDAQ: RRR) are on a blistering pace to start 2024 as highlighted by a first-quarter gain of 17.3%, outpacing a slew of small-cap indexes of which the stock is a member.

Las Vegas Culinary Union Station Casinos Red Rock
Station Casinos headquarters is seen with Red Rock Resort in the background. Analysts are bullish on the stock. (Image: Las Vegas Review-Journal)

Some analysts believe there’s more upside ahead for the casino operator. In a note to clients on Monday, Deutsche Bank analyst Carlo Santarelli reiterated a “buy” rating on the gaming equity while boosting his price target to $70 from $62. That implies upside of almost 17% from the March 28 close. This is the second time since the start of 2024 that the analyst boosted his price outlook on Red Rock.

We have become increasingly comfortable with; 1) continued locals market promotional discipline, 2) continued above expectation performance at Durango, and 3) lower than expected cannibalization across both the BYD and RRR portfolios,” wrote Santarelli.

He noted that he upped 2024 and 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates on Red Rock. The operator of the Station casinos, among others, is coming off a fourth quarter in which it trounced Wall Street’s EBITDA and revenue forecasts.

Durango Helping, Not Hurting Red Rock Stock

Red Rock’s Durango Casino & Resort in Southwest Las Vegas opened last December to much fanfare, but there was also concern that the venue could cannibalize some of the operator’s other nearby venues — namely its eponymous casino resort in Summerlin.

That hasn’t been the case and rival Boyd Gaming (NYSE: BYD) said it sees little evidence that Durango is adversely affecting its casinos that are nearest to Durango. However, there’s no denying that Red Rock’s newest portfolio addition is off to a strong start and enjoys some geographic advantages.

The recently concluded first quarter was the first full three-month of operations for Durango and investors will get a sense of how the venue is affecting Red Rock’s top and bottom lines when the operator delivers first-quarter results on May 1.

“We continue to view RRR as the best, controllable organic, growth story within our coverage universe, given the underlying stability in the LV locals market, the above expectations performance at Durango, and the pipeline of future development project opportunities available to management,” added Santarelli.

More Bullish Chatter on Red Rock Stock

Previously, some analysts forecast Durango visitation will stabilize at 10K per day, adding to Red Rock’s already dominant positioning in the highly desirable Las Vegas locals market. All of the operator’s gaming venues and planned projects are in the fast-growing Las Vegas Valley.

JPMorgan forecast first-quarter property-level EBITDA of $242 million for Red Rock, which assumes a $38 million contribution from Durango and a 6% same-store sales decline.

The bank reiterated an “overweight” rating on the stock while lifting its price target to $69 from $63, noting it expects Red Rock’s outlook to continue “to shine versus peers.”