Red Rock Resorts, Inc. (RRR - Free Report) has been losing the sheen of late. A look at the company’s price trend reveals that the stock has had an unimpressive run on the bourses in the past six months. Red Rock Resorts has lost 14.8% compared with the industry’s 4.8% decline. Let’s delve deeper and find out the factors hurting the company’s performance.
On the bottom-line front, Red Rock Resorts has disappointed investors. In second-quarter 2019, the company’s earnings have missed the Zacks Consensus Estimate for the second straight time. Red Rock Resorts also reported a bottom-line miss in three of the trailing four quarters, the average miss being 21.7%.
Adjusted earnings in the second quarter came in at 13 cents per share, which lagged the Zacks Consensus Estimate of 17 cents. In the prior-year quarter, the company had reported adjusted earnings of 33 cents per share.
For the current quarter and year, earnings estimates have declined 51.6% and 35.3%, respectively, over the past seven days, reflecting analysts’ concern surrounding the company’s earnings potential.
Furthermore, expenses related to this Zacks Rank #4 (Sell) company’s initiatives to redevelop its projects are concerning. Subsequently, the company’s operating costs and expenses increased a respective 21.6% and 57.1% year over year in the first and second quarter of 2019. The increase in expenses can be primarily attributed to a rise in the company’s selling, general and administrative costs, and food and beverage expenses. In second-quarter 2019, Room and Other expenses were also high.
If Red Rock Resorts fails to control its remodeling costs. This might significantly dent the company’s margins and hurt its profits in the coming days.
High debt remains an added headwind. As of Jun 30, 2019, Red Rock Resorts had total debt of $3 billion. Owing to a higher debt burden, the company might fail to finance upcoming projects. Moreover, any downturn in the macroeconomic and credit market conditions would make it difficult for Red Rock Resorts to pay or refinance its debt moving ahead.
The company’s valuation also looks stretched. Red Rock Resorts’ trailing 12-month EV/EBITDA ratio is 12.26. The industry average and S&P 500 composite market’s ratio stands at 11.18 and 11.1, respectively.
Stocks to Consider
Better-ranked stocks, worth considering in the same space, include Penn National Gaming, Inc. (PENN - Free Report) , Melco Resorts & Entertainment Limited (MLCO - Free Report) and SciPlay Corporation (SCPL - Free Report) . While Penn National Gaming sports a Zacks Rank #1 (Strong Buy), Melco Resorts & Entertainment and SciPlay carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Penn National Gaming and Melco Resorts & Entertainment have an impressive long-term earnings growth rate of 10% and 22.1%, respectively.
Shares of SciPlay have surged 12% in a month.
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