Red Rock Resorts Meaningfully Reduces Shares Outstanding Count in Dutch Auction

Posted on: December 10, 2021, 01:42h. 

Last updated on: December 10, 2021, 03:08h.

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

Red Rock Resorts, Inc. (NASDAQ:RRR) is significantly reducing the amount of its freely floating shares by way of a previously announced tender offer.

red rock stock
Red Rock Casino in Summerlin, Nevada, seen above. Shares of the owner surged today on news of a completed stock buyback. (Image: KOLO-8)

In announcing the results of a Dutch auction today, the Station Casinos parent said more than 6.92 million shares were properly tendered at or below a purchase price of $51.50.

That represents a sizable paring of the gaming company’s shares outstanding count. Confirming that investors are warm to the plan, Red Rock stock jumped 4.45 percent today on volume that was more than double the daily average to close at $51.65.

The total of 6,921,149 Shares that RRR expects to purchase represents approximately 10.13 percent of the total number of shares outstanding, or 6.12 percent of the total number of shares outstanding assuming exchange of all shares of the Company’s Class B Common Stock and limited liability interests in Station Holdco LLC, as of Dec. 9,” according to a statement issued by the company.

In essence, Red Rock is buying back stock. But the Dutch auction methodology is different than repurchasing shares on the open market. In a Dutch auction, the price of what’s being sold is determined by accounting for all bids to arrive at the highest price.

Red Rock Rewarding Shareholders

Red Rock’s repurchase scheme was announced last month, along with plans to pay a special dividend of $3 a share. There was a sweetner in the Dutch auction.

“Included in the 6,921,149 Shares that RRR expects to purchase are 125,033 Shares that RRR has elected to purchase pursuant to its right to purchase up to an additional two percent of its outstanding shares,” said the company.

Repurchase programs are often seen as votes of confidence from management, and signals that they believe their company’s stock is undervalued. Whether or not Red Rock stock is inexpensive is a matter of interpretation, as the shares are up 110.62 percent year-to-date. But the stock trades at 20x forward earnings, which is slightly below comparable estimates on broader equity market benchmarks.

With a market capitalization of $5.96 billion, Red Rock is a mid-cap stock, and it’s trouncing indexes in that category this year. For example, the widely observed S&P MidCap 400 Index is up “just” 20.67 percent in 2021.

Outlook Bright for Red Rock Stock

Red Rock’s balance sheet is firming, as leverage declines to an estimated 1.8x and sports a balance sheet some analysts call “transformed.” The operator bolstered its cash position with the recent of unused land in the Reno area for $32.6 million.

With the shares soaring, investors are mulling what’s next for Red Rock. That includes the Durango project, which is slated to break ground in the first quarter of 2022.

Additionally, some analysts speculate the company holds assets beyond Durango that currently factored into the stock price, and could be worth several more dollars in per-share value.