Analyst Believes Red Rock Resorts' EBITDA Will Benefit from Durango
Opening later this year, the Durango Casino & Resort in southwest Las Vegas is anticipated to boost Red Rock Resorts' (NASDAQ: RRR) profits. Stifel analyst Steven Wieczynski, in a recent report to clients, has rated Red Rock as "hold" with a $54 price target, implying a potential increase of 15.7% from current levels. Despite revising down short-term earnings projections for Red Rock, Wieczynski increased long-term expectations based on the anticipated success of Durango.
"We are increasing our 2024/2025 EBITDA estimates as we believe our previous estimates were too conservative regarding the opening and development of RRR's Durango project," Wieczynski wrote. "The opening of Durango should act as a catalyst for growth, and we believe shares can appreciate in anticipation of that opening date."
Red Rock estimates that Durango Casino & Resort will perform well since the area where the venue is being built lacks an overabundance of gaming venues. In fact, the region is somewhat neglected. The casino will provide 73,000 square feet of gambling space, a sportsbook, 2,000 gaming machines, and 40 table games.
Red Rock: A Leading Participant in the Las Vegas Casino Scene
In addition to its flagship venue in Summerlin and Green Valley Ranch in Henderson, Red Rock operates numerous gaming establishments under the Station brand across the greater Las Vegas area. It also manages 11 Wildfire casinos, including seven in Henderson, as per their website.
In other words, Red Rock is one of the most significant operators in the Las Vegas Valley due to the number of venues it manages, despite not owning a Strip integrated resort. Additionally, the company seeks to double its presence in its home city over the coming decade, suggesting it's optimistic about the future of the Las Vegas locals market.
"The overall state of the Las Vegas locals market is quite robust. We attribute this strength to rising population and wage growth, as well as favorable supply/demand dynamics," added Wieczynski. "Why shouldn't these strong fundamentals persist going forward?"
The influx of affluent retirees from neighboring states like California provides a long-term argument for Red Rock shares. Since many of these new residents can pay cash for Las Vegas real estate, they no longer face mortgage obligations. Furthermore, they benefit from lower property taxes and no state income tax in Nevada, freeing up more money to spend at Red Rock-operated casinos.
Red Rock's Margin Growth Continues to Be Solid
While all regional casino operators, including Red Rock, saw margin improvements following the COVID-19 pandemic, there have been questions about how long this trend would last. Some evidence suggests that this theme is starting to wane.
In the case of Red Rock specifically, the company has maintained solid margin growth despite the tough labor market in Las Vegas. At the end of May, Nevada's unemployment rate was 5.4%, which was the highest in the country.
"We believe the Red Rock story becomes more appealing by the day, and while we forecast flat margins moving forward, if we're wrong, shares are significantly undervalued," concluded Wieczynski.
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Source: www.casino.org
