Red Rock Q3 Earnings Not Exciting, Some Pleasant Surprises Delivered

Posted on: October 28, 2022, 12:37h. 

Last updated on: October 28, 2022, 01:33h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Red Rock Resorts (NASDAQ: RRR) delivered third-quarter earnings after the close of US markets on Thursday, telling investors it earned 83 cents a share on revenue of $414 million.

Red Rock
Red Rock Resort in Summerlin, Nev. The operator’s Q3 results were decent and one analyst is optimistic. (Image: Details In Luxury)

While net income fell to $95.5 million from $117.9 million a year earlier, the initial reaction to the results suggests neither disappointment nor elation. In this volatile market environment, investors can live with that. Further examination of the casino operator’s report indicates there are some positive surprises to consider.

That’s the case laid out by Stifel analyst Steven Wieczynski, who rates shares of Red Rock “hold,” with a new price target of $46, up from $45. That implies upside of nearly 18% from Thursday’s close.

Turning to operations, the Las Vegas Locals market is clearly booming, and we see no reason why it should slow down anytime soon,” wrote the analyst. “We continue to be impressed at how RRR is managing/running their business at this point and converting more earnings before interest, taxes, depreciation and amortization (EBITDA) into free cash flow which has/should rapidly improve (relatively speaking as their balance sheet is already pretty clean compared to peers) their balance sheet.”

In addition to its namesake venue in Summerlin and 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.

Red Rock Catalysts

Some analysts view Red Rock as one of the more catalyst-rich gaming stories, with potential sparks including consistently strong operating margins and the ongoing vibrancy of the Las Vegas locals segment – imperative to the operator’s investment thesis, because that’s where all of its gaming venues are located.

By some estimates, Red Rock could potentially double the number of large integrated resorts it runs by 2030. That’s while driving earnings before interest, taxes, depreciation, and amortization (EBITDA) higher by 70%. That expansion is likely rooted in part in current Las Vegas expansion plans.

Those include a Wildfire casino in downtown, which could open later this year, the Durango in the southwest part of the city, and a major overhaul of the now-shuttered Wild Wild West.

“We look to 2023 to drive our valuation, as we believe it provides the clearest indication of what the business might look like in a recessionary operating environment,” added Wieczynski.

Red Rock Real Estate Not Fully Appreciated

The Stifel analyst also noted Red Rock’s “undeveloped land bank continues to be underappreciated.”

In July, the operator announced the purchase of 126 acres of land south of the Strip for $172 million — boosting its unused land holdings in the Las Vegas Valley to nearly 430 acres.

Based on current Las Vegas commercial land values and the company’s market capitalization of $3.97 billion, it’s not a stretch to say investors are in fact not fully appreciating Red Rock’s real estate holdings.