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Here's Why You Should Retain Red Rock Resorts' (RRR) Stock

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Red Rock Resorts, Inc. (RRR - Free Report) is likely to benefit from cost-saving initiatives, Las Vegas operations and digitalization initiatives. This, along with an emphasis on development projects, bodes well. In the past six months, the stock has gained 20% against the industry’s 18.6% decline. However, a rise in COVID-related mitigation and carry costs is a concern.

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 continues to focus on initiatives, such as streamlining of operations, optimization of marketing initiatives and renegotiating vendor and third-party agreements to drive growth. The initiatives will not only support efficient production but are also likely to drive margins and free cash flow. Backed by the initiatives, the company expects to save more than $200 million in annual costs (compared with its pre-pandemic cost structure) in the upcoming periods.

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The company’s Las Vegas operations have been a key growth driver in 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 a stable regulatory environment. Attributes like best-in-class assets and locations, unparallel distribution and scale, along with a solid organic development pipeline, are likely to drive the company.

Red Rock Resorts continues to make substantial progress with respect to cashless gaming. During third-quarter 2021, the company initiated field trials with IGT (at Red Rock and Green Valley branch properties) to introduce cashless payments on the slot floor. Red Rock Resorts intends to offer a single mobile digital wallet access for playing and paying purposes at each of its Las Vegas properties. Apart from this, the company entered into a partnership with GAN Limited (in October 2021) to build and deploy the next-generation infrastructure stations STN Sports online sports platform, mobile applications and retail over-the-counter and kiosk-based sports betting throughout Nevada. The company stated that the product launch is subject to regulatory approvals.

Following a favorable decision from the California Supreme Court (in August 2020), Red Rock Resorts focused more 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 the planning and budgeting stage. Also, it 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 73,000 square feet of casino space, 2,000 slots and 40 table games, a state-of-the-art sportsbook, 200 hotel rooms along with four full-service food and beverage outlets. Currently in the 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 as well as the absence of unrestricted gaming competitors (within a 5-mile radius of the project site).

Concerns

The Gaming industry is currently grappling with the coronavirus pandemic and Red Rock Resorts isn’t immune to the trend. Although the company is witnessing increasing visitation by younger demographics, it is being largely negated by higher COVID-related mitigation costs (nearly $2.4 million) and carry costs associated with its closed properties (approximately $2.6 million) as of third-quarter 2021. The unprecedented nature of the crisis is likely to affect the company’s results going forward.

Zacks Rank and Stocks to Consider

Currently, Red Rock Resorts’ carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Some better-ranked stocks in the Zacks Consumer Discretionary sector include Churchill Downs Incorporated (CHDN - Free Report) , Bluegreen Vacations Holding Corporation (BVH - Free Report) and Century Casinos, Inc. (CNTY - Free Report) .

Churchill Downs sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 13.7%, on average. Shares of the company have increased 21.4% so far this year.

The Zacks Consensus Estimate for Churchill Downs’ current financial-year sales and earnings per share (EPS) suggests growth of 51.4% and 684.3%, respectively, from the year-ago period’s levels.

Bluegreen Vacations flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 695%, on average. Shares of the company have surged 159.7% so far this year.

The Zacks Consensus Estimate for Bluegreen Vacations’ current financial-year sales and EPS indicates growth of 27.5% and 199.3%, respectively, from the year-ago period’s levels.

Century Casinos carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 758.9%, on average. Shares of the company have increased 99.4% so far this year.

The Zacks Consensus Estimate for Century Casinos’ current financial-year sales and EPS suggests growth of 26.9% and 146.6%, respectively, from the year-ago period’s levels.