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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 solid Las Vegas operations, strong visitation and development projects. This and the focus on repositioning of land portfolio bodes well. However, inflationary pressures and rising interest rates are a concern.

Let us discuss the factors that highlight why investors should retain the stock for the time being.

Factors Driving Growth

Red Rock Resorts’ Las Vegas operations have been a key growth driver in the past few quarters and the trend will likely continue in the upcoming quarters. During the first quarter of 2023, revenues from Las Vegas operations came in at $430 million, up 7.6% year over year. The segment’s adjusted EBITDA came in at $214.1 million compared with $198.2 million reported in the prior-year quarter.

The company is bullish about its long-term view, owing to favorable supply-demand dynamic, positive long-term trends in population growth and stable regulatory environment. Attributes such as best-in-class assets and locations, unparallel distribution and scale and a solid organic development pipeline are likely to add to the positives.

Red Rock Resorts is witnessing favorable customer trends, following the reopening of most of its properties. During the first quarter of 2023, the company witnessed consistent visitation from its guests and strong spend per visit across its portfolio. Attributes such as consistent visitation from guests, increased spending per visit, more time spent on gaming devices and a return of core customers have added to the positives. The company reported growth in food and beverage and hotel segments fueled by the strength in catering business. RRR intends to focus on business optimization and cost-reduction measures to drive growth.

Red Rock Resorts continues to focus on development projects to drive growth. During the first quarter, the company stated progress with respect to the Durango development project. During the quarter, the company emphasized on expanding its casino area with additional gaming positions. It is of the opinion that a larger casino footprint will better align the product offering given the backdrop of favorable demographics surrounding the Durango region. With solid progress reported (as of March 2023), the company anticipates opening the project by fourth-quarter 2023. It expects to spend approximately $780 million on the project, thereby covering costs related to design, construction, preopening expenses and financing expenses.

The company emphasizes on divestitures to drive growth. On April 20, the Oakland A's entered into a purchase and sale agreement to buy 48.6 acres of land on Viva site. It was provided an option of acquiring additional eight acres of land on the site. Red Rock Resorts stated that upon closing of the transaction (along with the eight-acre option), it will retain 39.3 acres (of Viva site) for future monetization. The company is bullish on the repositioning strategy of land portfolio. It anticipates closing the deal in the fourth quarter of 2023.


Zacks Investment Research
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In the past six months, shares of Red Rock Resorts have gained 4.6% compared with the industry’s 16.6% growth. The downside was mainly due to inflationary pressures, increased energy costs and rising interest rates. During the first quarter of 2023, the company witnessed price inflation in ordinary goods and services such as food costs, supplies, energy costs and construction costs. During the quarter, food and beverage expenses increased 12.9% year over year to $60.1 million. The company is cautious about the ongoing uncertain macroeconomic environment. For 2023, our model predicts casino expenses and Food and beverage expenses to rise 4.5% and 5%, respectively, on a year-over-year basis.

Zacks Rank and Stocks to Consider

Currently, Red Rock Resorts’ carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Consumer Discretionary sector are MGM Resorts International (MGM - Free Report) , Royal Caribbean Cruises Ltd. (RCL - Free Report) and Crocs, Inc. (CROX - Free Report) .

MGM Resorts sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 81%, on average. The stock has increased 25.2% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MGM’s 2024 sales and EPS indicates a rise of 1.4% and 22.3%, respectively, from the year-ago period’s estimated levels.  

Royal Caribbean sports a Zacks Rank #1. RCL has a trailing four-quarter earnings surprise of 26.4%, on average. Shares of RCL have gained 54.3% in the past year.  

The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates a rise of 47.9% and 158.3%, respectively, from the year-ago period’s levels.

Crocs carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 19.6%, on average. Shares of Crocs have increased 109.1% in the past year.

The Zacks Consensus Estimate for CROX’s 2023 sales and EPS indicates a rise of 13.2% and 5.7%, respectively, from the year-ago period’s levels.

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