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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) will likely benefit from consistent guest visitation, development projects and cost-saving initiatives. This and the focus on divestitures bodes well. However, a rise in labor and commodity 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 is witnessing favorable customer trends following the reopening of most of its properties (in June 2020). During the third quarter of 2022, the company witnessed consistent visitation from its guests and strong spend per visit across its portfolio. Attributes such as strong and consistent visitation from guests (including a younger demographic), increased spending per visit, more time spent on gaming devices and a return of core customers have been adding to the positives. Also, the company reported growth in food and beverage and hotel segments fueled by the strength in regional and out-of-town businesses. Moving forward, the company intends to focus on offering new amenities to its guests (such as the openings of Lotus of Siam restaurant and new high-limits slot room), business optimization and cost reduction measures to drive growth.
Red Rock Resorts continues to focus on development projects to drive growth. During the second quarter, the company stated progress with respect to the Durango development project. Located off the 215 Expressway and Durango Drive in Southwest Las Vegas Valley, the project will likely cover 71 acres in the area. The facility will comprise 73,000 square feet of casino space, 2,000 slots and 46 table games, a state-of-the-art sportsbook, 200 hotel rooms and four full-service food and beverage outlets. The company is optimistic about this development pipeline owing to the location. The fact that there are no unrestricted gaming competitors (within a 5-mile radius of the project site) is likely to add to the positives. The company anticipates opening the property in the fall of 2023.
The company emphasizes on divestitures to drive growth. In June 2022, the company shut its operations in Texas Station, Fiesta Henderson and Fiesta Rancho properties owing to the coronavirus crisis. The facilities at these properties are being demolished to reposition the land for sale. In September 2022, the company announced the closure of Wild Wild West. The company intends to divest certain land parcels to reposition its real estate portfolio for growth at Station Casinos.
Red Rock Resorts continues to streamline operations and optimize marketing initiatives to drive growth. The initiatives will support efficient production and are 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.
Image Source: Zacks Investment Research
In the past six months, shares of Red Rock Resorts have gained 12.6% compared with the industry’s 8.5% growth.
Concerns
A rise in labor and commodity cost continues to hurt the company. During the third quarter of 2022, the company witnessed price inflation in ordinary goods and services such as food costs, supplies, energy costs and construction costs. It also witnessed higher costs on account of labor and supply chain shortages. During the quarter, food and beverage expenses increased 6.6% year over year to $55.3 million. The company intends to focus on cost controls and price adjustments to counter the same.
The company is cautious about the uncertainties related to the impacts of inflation, increased energy costs and interest rates and the COVID-19 pandemic (and its related variants) on the United States and Las Vegas economies.
Monarch Casino sports a Zacks Rank #1. MCRI has a trailing four-quarter earnings surprise of 9.1%, on average. The stock has gained 24.2% in the past year.
The Zacks Consensus Estimate for MCRI’s 2022 sales and earnings per share (EPS) indicates growth of 21.1% and 29.2%, respectively, from the year-ago period’s reported levels.
Hyatt currently has a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average. The stock has increased 25.6% in the past year.
The Zacks Consensus Estimate for H’s current financial year sales and EPS indicates a surge of 92.6% and 121.8%, respectively, from the year-ago period’s reported levels.
Crocs currently has a Zacks Rank #2. CROX has a long-term earnings growth rate of 15%. Shares of Crocs have plunged 38.6% in the past year.
The Zacks Consensus Estimate for CROX’s 2022 sales and EPS indicates a rise of 51.5% and 23.7%, respectively, from the year-ago period’s levels.
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Here's Why You Should Retain Red Rock Resorts' (RRR) Stock
Red Rock Resorts, Inc. (RRR - Free Report) will likely benefit from consistent guest visitation, development projects and cost-saving initiatives. This and the focus on divestitures bodes well. However, a rise in labor and commodity 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 is witnessing favorable customer trends following the reopening of most of its properties (in June 2020). During the third quarter of 2022, the company witnessed consistent visitation from its guests and strong spend per visit across its portfolio. Attributes such as strong and consistent visitation from guests (including a younger demographic), increased spending per visit, more time spent on gaming devices and a return of core customers have been adding to the positives. Also, the company reported growth in food and beverage and hotel segments fueled by the strength in regional and out-of-town businesses. Moving forward, the company intends to focus on offering new amenities to its guests (such as the openings of Lotus of Siam restaurant and new high-limits slot room), business optimization and cost reduction measures to drive growth.
Red Rock Resorts continues to focus on development projects to drive growth. During the second quarter, the company stated progress with respect to the Durango development project. Located off the 215 Expressway and Durango Drive in Southwest Las Vegas Valley, the project will likely cover 71 acres in the area. The facility will comprise 73,000 square feet of casino space, 2,000 slots and 46 table games, a state-of-the-art sportsbook, 200 hotel rooms and four full-service food and beverage outlets. The company is optimistic about this development pipeline owing to the location. The fact that there are no unrestricted gaming competitors (within a 5-mile radius of the project site) is likely to add to the positives. The company anticipates opening the property in the fall of 2023.
The company emphasizes on divestitures to drive growth. In June 2022, the company shut its operations in Texas Station, Fiesta Henderson and Fiesta Rancho properties owing to the coronavirus crisis. The facilities at these properties are being demolished to reposition the land for sale. In September 2022, the company announced the closure of Wild Wild West. The company intends to divest certain land parcels to reposition its real estate portfolio for growth at Station Casinos.
Red Rock Resorts continues to streamline operations and optimize marketing initiatives to drive growth. The initiatives will support efficient production and are 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.
Image Source: Zacks Investment Research
In the past six months, shares of Red Rock Resorts have gained 12.6% compared with the industry’s 8.5% growth.
Concerns
A rise in labor and commodity cost continues to hurt the company. During the third quarter of 2022, the company witnessed price inflation in ordinary goods and services such as food costs, supplies, energy costs and construction costs. It also witnessed higher costs on account of labor and supply chain shortages. During the quarter, food and beverage expenses increased 6.6% year over year to $55.3 million. The company intends to focus on cost controls and price adjustments to counter the same.
The company is cautious about the uncertainties related to the impacts of inflation, increased energy costs and interest rates and the COVID-19 pandemic (and its related variants) on the United States and Las Vegas economies.
Zacks Rank and Stocks to Consider
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 are Monarch Casino & Resort, Inc. (MCRI - Free Report) , Hyatt Hotels Corporation (H - Free Report) and Crocs, Inc. (CROX - Free Report) .
Monarch Casino sports a Zacks Rank #1. MCRI has a trailing four-quarter earnings surprise of 9.1%, on average. The stock has gained 24.2% in the past year.
The Zacks Consensus Estimate for MCRI’s 2022 sales and earnings per share (EPS) indicates growth of 21.1% and 29.2%, respectively, from the year-ago period’s reported levels.
Hyatt currently has a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average. The stock has increased 25.6% in the past year.
The Zacks Consensus Estimate for H’s current financial year sales and EPS indicates a surge of 92.6% and 121.8%, respectively, from the year-ago period’s reported levels.
Crocs currently has a Zacks Rank #2. CROX has a long-term earnings growth rate of 15%. Shares of Crocs have plunged 38.6% in the past year.
The Zacks Consensus Estimate for CROX’s 2022 sales and EPS indicates a rise of 51.5% and 23.7%, respectively, from the year-ago period’s levels.