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Red Rock (RRR) Stock Up 27% in 3 Months: More Upside Left?

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Red Rock Resorts, Inc. (RRR - Free Report) is likely to benefit from its Las Vegas operations. This along with increased focus on reopening of properties and cost-saving initiatives bodes well. In the past three months, the company’s stock has gained 26.9%, compared with the industry’s 13.7% growth. However, dismal traffic owing to the coronavirus pandemic poses concerns.

Let us delve deeper into factors highlighting why investors should hold on to the stock for the time being.

Factors Driving Growth

Red Rock Resorts’ Las Vegas operations have been a key growth driver over the past few quarters and the trend is likely to continue in the coming quarters. Although the segment’s revenues declined in the third quarter of 2020 due to the pandemic, the company is confident about a quick rebound in its Las Vegas business. Moreover, attributes such as best-in-class assets and locations, unparallel distribution and scale along with solid organic development pipeline are likely to benefit the company.



During the third quarter of 2020, the company continued with the phased reopening program and operated properties of Red Rock, Green Valley Ranch, Santa Fe Station, Boulder Station, Palace Station and Sunset Station together with its Wildfire properties and the Graton Casino Resort. Notably, the openings were subjected to state-mandated occupancy and social-distancing protocols.

Meanwhile, the company continues to focus on initiatives, such as streamlining of operations, optimization of marketing initiatives, and renegotiating vendor and third-party agreements. Going forward, the initiatives are not only going to support efficient production but are also likely to drive margins and free cash flow. Notably, the company expects to save more than $150 million in annual costs.

Nonetheless, Red Rock Resorts’ healthy balance sheet is likely to help the company tide over the ongoing crisis. As of Sep 30, 2020, the company had nearly $108.9 million in cash. Moreover, the company’s long-term debt at the end of third-quarter 2020 came in at $3 billion, compared with $3.3 billion as of Jun 30, 2020. Notably, the company paid back $285.6 million in debt along with an additional $53 million, thereby bringing down its debt to pre-pandemic levels. At the end of third-quarter 2020, the company had a debt-to-capital ratio of 0.9, which indicates manageable debt levels.

Concerns

Red Rock Resorts’ financials in 2020 are likely to be impacted by the outbreak. Even though the company has resumed operations at majority of its gaming properties, traffic is expected to be affected by the social-distancing protocols. Owing to the pandemic, revenues during the third quarter of 2020 fell 24.2% on a year-over-year basis. Also, the top line declined year over year. Notably, COVID-19-related costs and travel restrictions added to the downside.

Red Rock Resorts, which shares space with Boyd Gaming Corporation (BYD - Free Report) , Wynn Resorts, Limited (WYNN - Free Report) and Las Vegas Sands Corp. (LVS - Free Report) in the Zacks Gaming industry, carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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