Red Rock Resorts Estimates Raised by Analyst as Las Vegas Locals Segment Perks Up

Posted on: August 27, 2020, 10:16h. 

Last updated on: August 27, 2020, 11:40h.

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

Shares of Red Rock Resorts (NASDAQ:RRR) climbed modestly in midday trading Thursday. That’s after an analyst boosted his 2020 through 2022 earnings before interest, taxes, depreciation and amortization (EBITDA) forecasts on the gaming company.

Red Rocks Resort Stock Up On Analyst Tout
Fiesta Henderson, seen here, will be closed for another 10 months. But an analyst likes Red Rock stock. (Image: Las Vegas Review-Journal)

In a note to clients today, Stifel analyst Steven Wieczynski lifted his 2020 EBITDA estimate on the Station Casinos parent to $223 million from $143 million, noting he was probably “overly conservative” in assumptions on the Las Vegas locals (LVL) market for the back half of this year.

In addition, given the better than expected July LVL reported revenues, we believe those positive trends can continue for the foreseeable future, and expect a more rational promotional environment as well,” said the analyst.

The eponymous Red Rock Casino and the Palms Las Vegas are two of the operator’s more visible venues. But there are nearly 20 gaming properties controlled by Station Casinos in Southern Nevada, most of which derive the bulk of their revenue from residents of the areas and employees of Strip casinos.

Fiesta Henderson, Fiesta Rancho, Palms, and Texas Station are slated to remain shuttered until June 30, 2021, and Red Rock executives say they don’t know if or when those properties will reopen.

Still Bullish

While the future of that quartet is murky, Wieczynski is enthusiastic about Red Rock’s prospects, noting 2022 EBITDA in Las Vegas should exceed the 2019 mark by a healthy margin.

The analyst increased his 2021 EBITDA forecast on Red Rock to $389 million from $363 million, while lifting his 2022 projection to $441 million to $429 million, citing improving fundamentals in the LVL segment. There’s something to that thesis, because Station casinos are less reliant on business travel and tourists arriving from outside Nevada than are competing Strip venues.

“Looking past the current subdued operating environment, we continue to believe the LVL market should boast some of the most attractive fundamentals in all of regional gaming when the world returns to normal,” said Wieczynski.

Factors that were at play prior to the COVID-19 pandemic, including increasing diversity in Southern Nevada’s labor force and the region’s rising population of retirees, should reappear after the virus is defeated, bolstering the case for Red Rock, said the analyst.

Palms Pause

Red Rock’s decision to keep the Palms, the operator’s glitziest venue, closed until June 2021 stoked speculation the company could be looking to sell the resort. But management scoffed at those rumors. Although the Palms isn’t on the Strip, Wieczynski says the health of that venue is directly tied to vibrancy on the Strip.

“In the end, given our expectation for the Strip, and Las Vegas more broadly, to prove a laggard in the COVID-19 recovery process, we believe investors will have the opportunity to remain patient with RRR shares,” said the Stifel analyst.

This month, brothers Frank and Lorenzo Fertitta bought about $17 million worth of RRR stock, propelling the name to a gain of more than 58 percent over the past 30 days. Frank is the chief executive, while Lorenzo is a vice president, and each hold a board seat.

Wieczynski lifted his price target on Red Rock to $18 from $14, implying modest upside from the $17.50 area at which it currently trades.