Red Rock Resorts (RRR) Banks on Development Projects, Costs High
Red Rock Resorts, Inc. RRR is likely to benefit from development projects, digital efforts and cost reduction measures. However, a rise in labor and commodity costs is a concern.
Let us discuss 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 third quarter, the company stated progress with respect to the Durango development project. Located off the 215 Expressway and Durango Drive in Southwest Las Vegas Valley, the project will likely cover 71 acres in the area. The facility will comprise 73,000 square feet of casino space, 2,000 slots and 46 table games, a state-of-the-art sportsbook, 200 hotel rooms and four full-service food and beverage outlets. The company is optimistic about this development pipeline owing to the location. The fact that there are no unrestricted gaming competitors (within a 5-mile radius of the project site) is likely to add to the positives. The company anticipates opening the property in the fall of 2023.
The company continues to make substantial progress with respect to cashless gaming. 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 in the upcoming periods.
The company has been witnessing favorable customer trends following the reopening of most of its properties. Attributes such as consistent visitation from guests, increased spending per visit, more time spent on gaming devices and a return of core customers have added to the positives. The company intends to offer new amenities to its guests (such as the openings of Lotus of Siam restaurant and new high-limits slot room), business optimization and cost reduction measures to drive growth.
Red Rock Resorts continues to streamline operations and optimize marketing initiatives to drive growth. The initiatives will support efficient production and are likely to drive margins and free cash flow. Backed by the initiatives, the company expects to save more than $200 million in annual costs (compared with its pre-pandemic cost structure) in the upcoming periods.
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In the past six months, the stock has gained 20.9% compared with the industry’s 15% growth.
Concerns
A rise in labor and commodity cost continues to hurt the company. During the third quarter of 2022, the company witnessed price inflation in ordinary goods and services such as food costs, supplies, energy costs and construction costs. It also witnessed higher costs on account of labor and supply chain shortages. During the quarter, food and beverage expenses increased 6.6% year over year to $55.3 million. The company intends to focus on cost controls and price adjustments to counter the same.
Zacks Rank and Stocks to Consider
Currently, Red Rock Resorts’ carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Some better-ranked stocks in the Zacks Consumer Discretionary sector are World Wrestling Entertainment, Inc. WWE, OneSpaWorld Holdings Limited. OSW and Manchester United plc MANU.
World Wrestling Entertainment currently sports a Zacks Rank #1. WWE has a trailing four-quarter earnings surprise of 25.2%, on average. The stock has increased 80.2% in the past year.
The Zacks Consensus Estimate for WWE’s 2023 sales and earnings per share (EPS) indicates a rise of 4.9% and 10.7%, respectively, from the year-ago period’s estimated levels.
OneSpaWorld currently sports a Zacks Rank #1. OSW has a trailing four-quarter earnings surprise of 84.2%, on average. Shares of OSW have increased 0.3% in the past year.
The Zacks Consensus Estimate for OSW’s 2023 sales and EPS indicates a rise of 24.2% and 91%, respectively, from the year-ago period’s levels.
Manchester currently sports a Zacks Rank #1. MANU has a trailing four-quarter earnings surprise of 34.4%, on average. Shares of MANU have gained 72.9% in the past year.
The Zacks Consensus Estimate for MANU’s 2024 sales and EPS indicates a rise of 11.4% and 27.8%, respectively, from the year-ago levels.
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World Wrestling Entertainment, Inc. (WWE) : Free Stock Analysis Report
Manchester United Ltd. (MANU) : Free Stock Analysis Report
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OneSpaWorld Holdings Limited (OSW) : Free Stock Analysis Report
