Hedge Funds Are Starting to Roll With Red Rock Resorts Stock Again

Posted on: December 14, 2019, 02:30h. 

Last updated on: December 15, 2019, 07:06h.

After a poor start to 2019, including a nasty tumble that lasted for much of the second and third quarters, Red Rock Resorts, Inc. (NASDAQ:RRR) is cobbling together some momentum.

Palms operator Red Rock has seen its stock languish, but it has hedge fund supporters. (Image: USA Today)

The Palms operator’s recent gains validate intrepid investors’ thesis that the stock looked appealing around its third-quarter nadir. Data confirms there were some market participants stepping into the regional gaming name during that time frame.

At Q3’s end, a total of 17 of the hedge funds were long this stock, a change of six percent from the previous quarter,” according to hedge fund data tracker Insider Monkey.

Hedge fund ownership of Red Rock equity is off the highs seen in mid-2018, but ticked higher from the second quarter. Buyers of the shares, professional and retail alike, that embraced the stock in the July through September period are being rewarded, as the shares have surged 39.50 percent off the August lows and are up nearly 10 percent this month.

Trying To Get Back In The Game

Broadly speaking, Wall Street analysts have been cautious on Red Rock stock this year amid a slow post-renovation ramp-up at the Palms. Even with the aforementioned recent bullishness deployed on Red Rock, the stock is up just 15.12 percent year-to-date, putting it well behind the S&P 500 and regional gaming names of comparable size, such as Boyd Gaming (NYSE:BYD) and Penn National Gaming (NASDAQ:PENN).

Hedge fund ownership of Red Rock is also behind that of regional rivals such as Penn National and Eldorado Resorts (NASDAQ:ERI). However, some funds have recently been adding to or initiating stakes in the Station Casinos operator in a big way.

With hedgies’ sentiment swirling, there exists an ‘upper tier’ of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions),” notes Insider Monkey.

As of Sept. 30, the hedge fund with the largest position in Red Rock in dollar terms was Diamond Hill Capital, which owned almost $148 million worth of the gaming company’s stock. Long Pond Capital was next at $61.2 million.

Notable Target

During the third quarter, new hedge fund buyers of Red Rock Resorts equity included Zimmer Partners, Steve Cohen’s Point72 Asset Management, Centenus Global Management, Weld Capital Management and Neo Ivy Capital.

Those investments could be further rewarded if sell-side analysts move their price forecasts on the stock higher, which they could be prompted to do over the near-term. The average price target on Red Rock is $24.10 and the stock closed at $23.38 on Friday, indicating that if the run higher continues, analysts may be forced to boost price estimates.

On a scale of one to five, with one being “very bearish” and five being “very bullish,” the average numerical rating on Red Rock is 3.82. Of the 11 analysts covering the shares, six have “buy” or “outperform” marks on the stock, while five have the equivalent of a “neutral” grade on it.