Development Projects Aid Red Rock Resorts (RRR), Costs High
Red Rock Resorts, Inc. RRR is likely to benefit from development projects, a rise in visitation and cost-saving efforts. Also, the emphasis on digital initiatives bodes well. However, inflationary pressures are a concern.
Let us delve into the factors that highlight why investors should retain the stock for the time being.
Factors Driving Growth
Red Rock Resorts continues to focus on development projects to drive growth. During the first quarter, the company made progress with respect to the Durango development project. During the quarter, the company emphasized on expanding its casino area with additional gaming positions. It is of the opinion that a larger casino footprint will better align the product offering, given the backdrop of favorable demographics surrounding the Durango region. With solid progress reported (as of March 2023), the company anticipates opening the project by fourth-quarter 2023. It expects to spend approximately $780 million on the project, thereby covering costs related to design, construction, preopening expenses and financing expenses.
Red Rock Resorts benefits from a rise in visitation and strong spending per visit across its portfolio. Attributes such as strong and consistent visitation from guests (including a younger demographic), increased spending per visit, more time spent on gaming devices and the return of core customers are positives. Also, it reported growth in food and beverage and hotel segments fueled by the strength in regional and out-of-town businesses. With group business returning back, the momentum is likely to persist in the upcoming periods. Per our model, the company’s 2023 food and beverage and room revenues will likely witness growth of 6.2% and 7.6%, respectively, year over year.
Red Rock Resorts continues to focus on streamlining operations, optimizing marketing initiatives and renegotiating vendor and third-party agreements to drive growth. The initiatives will lead to efficient production and likely drive margins and free cash flow. The company continues to expect to save more than $200 million in annual costs compared with its pre-pandemic cost structure.
Increased focus on technological enhancements bodes well. During fourth-quarter 2021, the company completed field trials with IGT (at Red Rock and Green Valley branch properties) for cashless payments on the slot floor. During first-quarter 2022, the company initiated the product’s rollout at its Las Vegas properties, excluding Wildfire Taverns and Sunset Station. Given the emphasis on a single mobile digital wallet access for playing and paying purposes, the company intends to implement the product at the remaining properties over the upcoming periods.
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In the past three months, the stock has gained 11.9% compared with the industry’s 7.3% growth.
Concerns
A rise in energy costs and rising interest rates continues to hurt the company. During the first quarter of 2023, the company witnessed price inflation in ordinary goods and services such as food costs, supplies, energy costs and construction costs. During the quarter, food and beverage expenses increased 12.9% year over year to $60.1 million.
The company is cautious about the ongoing uncertain macroeconomic environment. Per our model, the company’s 2023 casino expenses and Food and beverage expenses is expected to increase 4.5% and 5%, respectively, year over year.
Zacks Rank and Stocks to Consider
Currently, Red Rock Resorts’ carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector are as follows:
Royal Caribbean Cruises Ltd. RCL sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 26.4%, on average. Shares of RCL have surged 169.9% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Royal Caribbean Cruises’ 2023 sales and EPS indicates a rise of 48.5% and 162.5%, respectively, from the year-ago period’s levels.
Trip.com Group Limited TCOM sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 147.9%, on average. Shares of TCOM have increased 54.9% in the past year.
The Zacks Consensus Estimate for Trip.com Group’s 2023 sales and EPS implies an increase of 102.2% and 334.5%, respectively, from the year-ago period’s levels.
Skechers U.S.A., Inc. SKX sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 18.8%, on average. Shares of SKX have increased 39.8% in the past year.
The Zacks Consensus Estimate for Skechers U.S.A.’s 2023 sales and EPS suggests a rise of 7.7% and 31.5%, respectively, from the year-ago period’s levels.
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