Red Rock Stock Primed for Upside on Las Vegas Locals Strength

Posted on: September 11, 2023, 03:21h. 

Last updated on: September 11, 2023, 03:56h.

Red Rock Resorts (NASDAQ: RRR) stock could be a winner amid ongoing strength in the Las Vegas locals market — the operator’s key constituency.

red rock stock
Red Rock Casino-Resort, seen in an ad above. An analyst believes the stock has multiple upside catalysts. (Image: YouTube)

That’s the take of Susquehanna analyst Joseph Stauff, who initiated coverage of the casino operator with a “positive” rating and a $52 price target in a report to clients Monday. That implies upside of 17.1% from current levels. Shares of Red Rock are higher by nearly 9% year-to-date.

Stauff expressed bullishness on the gaming equity, noting Red Rock has an impressive 35% share of slot machine gaming across the three Las Vegas reporting segments — a noteworthy trait at a time when the local population is swelling.

An influx of affluent retirees from other states, namely neighboring California, bolsters the long-term case for Red Rock shares because many of those consumers can pay cash for Las Vegas real estate. Combine the elimination of mortgage obligations with lower property taxes and no state income tax in Nevada, and they have the discretionary cash with which to indulge in visits to Red Rock-operated casinos.

Red Rock Stock Alternative Las Vegas Avenue

While many market participants think of Strip operators such as Caesars Entertainment and MGM Resorts International (NYSE: MGM) as the primary avenues for investing in Las Vegas, Red Rock offers a different approach that reduces the volatility associated with Strip assets.

In addition to its namesake venue in Summerlin and the Green Valley Ranch in Henderson, Red Rock operates multiple gaming properties under the Station brand throughout the Las Vegas area. The company also runs 10 Wildfire casinos, including seven in Henderson, according to its website.

Translation: Red Rock doesn’t operate a Strip casino resort, but it is levered to important Las Vegas trends, such as construction and an increasingly impressive event calendar. Additionally, Susquehanna’s Stauff highlighted the company’s real estate holdings as a potentially underappreciated catalyst for the stock.

Red Rock owns all of the real estate on which its casinos reside, meaning it doesn’t pay rent to a landlord. It also holds hundreds of acres of undeveloped land across the Las Vegas Valley. In aggregate, the company’s property assets are likely worth several billion dollars, if not more.

Durango Could Boost Red Rock Stock

Red Rock’s newest integrated resort — Durango Casino & Resort in Southwest Las Vegas — is slated to open on Nov. 20. Stauff called that a potential “material catalyst” for the stock.

Red Rock believes Durango Casino & Resort will be successful because it’s in one of the few areas of Las Vegas that isn’t densely populated with gaming venues. In fact, the operator forecast that Durango could eventually be among its top three casinos in terms of overall performance. That’s setting the bar high, considering the steadiness of the operator’s eponymous venue and others in its portfolio.

Red Rock commenced construction on the $750 million Durango project last year, and it was topped off last October.