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Red Rock Resorts Strong on Las Vegas Operations, Costs High

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Red Rock Resorts, Inc. (RRR - Free Report) is likely to benefit from its Las Vegas operations as well as Palace Station and Palms redevelopment projects. Also, the company’s strong balance sheet will help tide over uncertainties stemming from the coronavirus pandemic. However, dismal traffic due to the pandemic and high operating expenses pose concerns.

Let us delve deeper into factors highlighting why investors should hold on to the stock for the time being.

Factors Likely to Drive Growth

Red Rock Resorts’ Las Vegas operations have been a key growth driver over the past few years, primarily driven by solid performance by both the gaming and non-gaming segments. Although the segment’s revenues declined in the first quarter 2020 due to the pandemic, the company is confident about a quick rebound in its Las Vegas business.

Moreover, the company banks heavily on the Palace Station and Palms redevelopment projects. Following the redevelopment in 2018 and 2019, the company witnessed solid top-line growth. Notably, it is optimistic about its future performance as well.

Meanwhile, the company stated that it has ample liquidity, which will help it survive in an extended zero revenue scenario. In mid-March, the company withdrew almost all of $1 billion credit facility. As of May 18, 2020, the company had nearly $950 million in cash. Although the company’s long-term debt at the end of first-quarter 2020 stood at nearly $4 billion compared with $3 billion as of Dec 31, 2019, it has no significant debt maturities until 2025. At the end of first-quarter 2020, the company had a debt-to-capital ratio of 0.9, indicating a manageable debt level.

Concerns

Red Rock Resorts’ financials in 2020 are likely to be impacted by the outbreak. Even though the company has resumed operations at majority of its gaming properties, traffic is expected to be affected by the social-distancing protocols. Owing to the uncertainty of the crisis, the company has suspended quarterly dividend payouts.

Moreover, rise in the company’s selling, general and administrative costs, and food and beverage expenses is worrisome. In first-quarter 2020, Room and Other expenses also increased. Notably, the company expects operating expenses to be higher in the upcoming quarters on account of the pandemic.

So far this year, shares of Red Rock Resorts have plummeted 57.4% compared with the industry’s 28.9% decline.

Red Rock Resorts, which shares space with Boyd Gaming Corporation (BYD - Free Report) , Wynn Resorts, Limited (WYNN - Free Report) and Las Vegas Sands Corp. (LVS - Free Report) in the Zacks Gaming industry, carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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