Red Rock Stock Draws Upgrade on Las Vegas Locals Steadiness

Posted on: October 2, 2023, 04:52h. 

Last updated on: October 2, 2023, 09:11h.

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

Shares of Red Rock Resorts (NASDAQ: RRR) closed modestly higher today after the stock landed an upgrade from a sell-side analyst.

Green Valley Ranch
Red Rock’s Green Valley Ranch in Henderson, Nevada. An analyst is bullish on the stock, citing Las Vegas locals’ strength. (Image: Green Valley Ranch)

In a note to clients today, CBRE analyst John DeCree lifted his rating on the gaming equity to “buy” from “hold” while unveiling a $53 price target. That implies an upside of 29% from today’s closing price and is the equivalent of 11x the operator’s estimated adjusted 2024 earnings before interest, taxes, depreciation and amortization (EBITDA). Strength in the Las Vegas locals segment continues underpinning the Red Rock investment thesis.

We recently met with RRR management and see continued strength in the Las Vegas Locals market; a key near-term catalyst with Durango Casino & Resort scheduled to open on November 20; and a deep pipeline of long-term growth prospects across the Las Vegas Valley,” DeCree wrote.

Red Rock believes Durango Casino & Resort will be successful because it’s in one of the few areas — southwest of Las Vegas — that isn’t densely populated with gaming venues. The casino will feature 73,000 square feet of gaming space, a sportsbook, 2,000 gaming machines, and 40 table games.

Las Vegas Locals Proving Reliable

While signs are mounting that profligate federal government spending, stubbornly high inflation, and the highest interest rates in two decades are pressuring the economy, the Las Vegas locals demographic is proving resilient.

That’s good news for Red Rock because all the operator’s venues are in the Las Vegas Valley. CBRE’s DeCree observed that while the research firm expected macroeconomic headwinds to lead to some degradation in the local market, that hasn’t happened. Rather, spending remains solid among Red Rock’s core customers, with no material signs of softness.

In addition to its namesake venue in Summerlin and the Green Valley Ranch in Henderson, Red Rock operates multiple gaming properties under the Station brand throughout the Las Vegas area. The company also runs 10 Wildfire casinos, including seven in Henderson, according to its website.

An influx of affluent retirees from other states, namely neighboring California, bolsters the long-term case for Red Rock shares because many of those consumers can pay cash for Las Vegas real estate.

Combine the elimination of mortgage obligations with lower property taxes and no state income tax in Nevada, and they have the discretionary cash with which to indulge in visits to Red Rock-operated casinos.

Catalysts Abound for Red Rock Stock

In addition to the upcoming debut of Durango, enhancements at Green Valley Ranch and the ongoing vibrancy in the Las Vegas local market, other catalysts are backstopping the Red Rock investment thesis.

Those include the point that the stock is now attractively valued with the shares off 20% from their 52-week — the definition of a bear market. It also comes with a 2.44% dividend yield and the resources to support that payout.

Additionally, Red Rock owns a treasure trove of real estate. It owns all the property on which its casino hotels and resorts stand and hundreds of acres of undeveloped land. In aggregate, the operator’s real estate holdings are likely worth more than its current market capitalization of $2.44 billion, indicating those assets aren’t adequately reflected in the share price.