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Red Rock Resorts (RRR) Shares Rally 82% YTD: More Room to Run?

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Red Rock Resorts, Inc. (RRR - Free Report) is poised to benefit from Las Vegas operations and development projects. This along with focus on cost-saving initiatives bodes well.

So far this year, shares of Red Rock Resorts have surged 82.4% compared with the industry’s 5.3% growth. The price performance was backed by solid earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in all of the trailing four quarters. Earnings estimates for 2021 and 2022 have moved up 678.6% and 36.1%, respectively, in the past 30 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Factors Driving Growth

Las Vegas Operations a Driving Factor:  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. The company is bullish on long-term view owing to favorable supply-demand dynamic, positive long-term trends in population growth and stable regulatory environment. Moreover, attributes such as best-in-class assets and locations, unparallel distribution and scale along with solid organic development pipeline are likely to add to the positives.

Improved Visitation: Red Rock Resorts is witnessing robust visitation from a younger demographic. The company informed that it is witnessing increased spend per visit and more time spent on device. It is benefiting from the continued roll out of vaccine, removal of capacity restrictions (for Clark County on Jun 1, 2021) and federal stimulus money. Going forward, the company anticipates to return to 100% occupancy.

Focus on Development Projects: Following favorable decision from the California Supreme Court (in August 2020), Red Rock increased focus on the North Fork development project. The cost of completion of this project, excluding any financing costs, is expected in the range of $350-$400 million. The company stated that the project is currently in planning and budgeting stage.

Additionally, the company has been focusing on the Durango development project. Located off the 215 Expressway and Durango Drive in Southwest Las Vegas Valley, the project is likely to offer 100,000 square feet of casino space, 2,000 slots and 40 table games, a state-of-the-art sports book, 200 hotel rooms along with four full-service food and beverage outlets. Currently in planning and budgeting stage, the company expects to start the project by first-quarter 2022. It is optimistic on this development pipeline owing to the location coupled as well as the absence of unrestricted gaming competitors (within a 5-mile radius of the project site). The estimated duration for construction is anticipated between 18 months and 24 months.

Cost-Saving Initiatives: During second-quarter 2021, the company’s performance benefited from streamlining of operations, optimization of marketing initiatives as well as renegotiations with vendors and third-party agreements. Backed by these initiatives, the company now expects to save more than $200 million in annual costs compared with pre-pandemic cost structure. Going forward, the initiatives will likely enhance production efficiency as well as drive margins and free cash flow.

Other Key Picks

Some other top-ranked stocks in the same space include Boyd Gaming Corporation (BYD - Free Report) , Golden Entertainment, Inc. (GDEN - Free Report) and Century Casinos, Inc. (CNTY - Free Report) . Boyd Gaming and Golden Entertainment sport a Zacks Rank #1, while Century Casinos carries a Zacks Rank #2 (Buy).

Boyd Gaming has a three-five year earnings per share growth rate of 40.8%.

2021 earnings for Golden Entertainment and Century Casinos are expected to surge 226.4% and 137.3%, respectively.