RRR - Red Rock Resorts: An Update On One Of My Favorite Casino Stocks

2023-05-04 14:11:40 ET

Summary

• An explosive move since the March 2020 low. Loving locals and treating employees well pay huge dividends.
• A new property opening soon. The Durango Casino & Resort is almost ready to open its doors. This will deliver steady revenues.
• The Oakland A’s will move to Las Vegas, and RRR is benefiting from a massive land deal and location.
• Premier property. Forbes named the Red Rock Resort to its Best Hotels List.
• RRR remains a top bet on the Las Vegas market for three reasons. More locals expanding the market, proven management, and upgraded products that compete with the strip.

Red Rock Resorts ( RRR ) was formerly known as Stations Casinos, which had the marketing motto " We love locals ." Over the past two years, investors' motto has been We Love RRR as the stock has soared from the March 2020 low.

On Jan. 10, 2021, in a Seeking Alpha article on RRR, I highlighted the stock's price rise from $16.79 on August 24, 2020 , to $25.33 per share. In that piece, I wrote, " I am still bullish. " I wrote, " The trend in RRR shares remains bullish at the beginning of 2021. The all-time high in the shares was in July 2018 at $36.99. I expect the stock will reach and exceed that level in 2021 ."

In April 2021, the stock rose above the 2018 record peak, rising to $58.74 in October 2021. At above the $46 level on May 4, 2023, I expect higher highs to continue as RRR has made all the right moves over the past years.

An explosive move since the March 2020 low

RRR shares were a steal when the pandemic gripped the stock market and sent Las Vegas casino stocks to lows.

The chart highlights the incredible rise from the mid-March 2020 $2.76 low to the most recent $58.74 record high in late October 2021. RRR shares moved over twenty-one times higher. At the $46 level on May 4, 2023, RRR is within striking distance the late 2022 high. After a correction to $30.98 in July 2022, the stock made higher lows and higher highs and was flirting with the $50 level in early May 2023.

As highlighted in the January 2021 Seeking Alpha article, RRR was loyal to its employees during the height of the global pandemic, even though the shares fell below the $3 level. As a local casino operator, the employees are community members, and the community rewarded the company's loyalty through the most challenging economic period in Las Vegas history. Employees like Nerlie Walter, a casino host at Red Rock Resort and Casino, and her colleagues go the extra mile for guests, building loyalty and the company's brand, reflecting the corporate culture contributing to the company's success.

The company's motto, We Love Locals , has also benefited from the significant migration to Las Vegas over the past years. As the locals' love increases, there is lots of love to go around, and the locals have shown their devotion to RRR, increasing the business flow and profits.

In Q4 2022, RRR blew away the consensus 59.0 cents EPS, reporting $1.49 per share. The company reports Q1 earnings on May 4, and the market expects EPS of 53.0 cents.

A new property opening soon

RRR is rolling out its newest property for locals, the Durango Casino and Resort , opening in late 2023. It features 83,000 square feet of casino space, a luxury hotel, and upscale food and beverage outlets. Durango is in a growing Las Vegas suburban neighborhood where new homes have gone up over the past years near the Durango Drive exit along the Las Vegas 215 beltway. Moreover, the resort is in an area that does not have local competition, and Las Vegas residents tend to favor their local resorts for staycations and visits. The crowded strip is for tourists, while RRR's strategy is to service the locals they love.

The chart shows that revenues have been steady, and RRR has beaten market EPS forecasts in six of the last eight quarters since Q1 2021.

The Oakland A's will move to Las Vegas, and RRR is benefiting

RRR's flagship property and namesake is the Red Rock Resort and Casino, located in growing and thriving Summerlin, the master-planned community envisioned by Howard Hughes. I have lived in Summerlin for over a decade and witnessed the community's growth.

Downtown Summerlin, a shopping and restaurant mecca, is next to the Red Rock Resort. Moreover, right across the street sits the City National hockey arena, the practice home of the city's pride and joy expansion NHL hockey team, the Vegas Golden Knights. Next to City National is the AAA ballpark, home to the Las Vegas Aviators, the minor league team connected with the Oakland A's. Over the past weeks, the A's announced their intention to move to Las Vegas.

The A's signed a binding agreement to purchase land near the Las Vegas Strip, intending to construct a major league ballpark. The deal for the 49-acre site is owned by Red Rock Resorts , creating a significant cash infusion for RRR. Moreover, since the stadium may not be ready until 2027, at the earliest, the A's may play home games at the Aviator's stadium , increasing traffic at the flagship Red Rock Resort. RRR is in the right places at the right time.

Premier Properties

Customers visiting Las Vegas resorts and casinos have many choices. Hotel accommodations, food, beverage service, pool and other entertainment venues, and casino options separate the winners from the losers in the highly competitive market.

Red Rock Resort and Casino is twelve miles from the Las Vegas strip. Still, Forbes recently put the property on its Best Hotels List , quite a feat in a market that competes with Wynn, Bellagio, Venetian, and the other top casino hotel resorts. The listing validates the " excellent amenities that easily rival those of the main Strip properties ."

RRR remains a top bet on the Las Vegas market for three reasons

Seeking Alpha factor grades for growth and valuation is problematic.

The D+ in valuation and D- in growth reflects the significant increase in RRR shares and the high market cap compared to " enterprise value ." However, an August 2022 Las Vegas Review-Journal article outlined the company's plans to double its portfolio by 2030 . Red Rock's land purchase and holding strategy is paying off in spades with the sale to the Oakland A's. It owns other development sites in Inspirada, Skye Canyon, and Town Center Drive, and Flamingo Road in growing Summerlin. RRR also has opened the Wildfire Casino on Freemont Street near Charleston Boulevard in the historic Las Vegas district. Meanwhile, the Henderson City Council just approved RRR's plans for Inspirada Station , another new resort and casino geared toward the local market.

Three factors lead me to believe RRR does not deserve low growth and valuation ratings:

• A growing local market: A study by UNLV researchers showed that Southern Nevada's population should grow to an estimated 3.39 million by 2060. The current population in Clark County , Nevada, stands at the 2.36 million level. Nevada's beneficial tax system fosters migration from neighboring California to the Las Vegas area. More locals to love will benefit RRR.
• Proven management: In the January 2021article, I highlighted Frank and Lorenzo Fertitta, the brothers who own a significant percentage of RRR shares and run the company. Lorenzo Fertitta is RRR's Chairperson, and Frank J Fertitta is RRR's CEO. In early 2021, I wrote, " The Fertittas are seasoned operators who have built plenty of goodwill with employees and customers during the pandemic. The latest earnings show that it is paying off for the company. " The share performance, growth of the company, and its holdings and plans only increase my faith in RRR's management.
• Upgraded products that compete with the strip: I have been a loyal customer at Red Rock Resorts since moving to Summerlin over a decade ago. Over the past year, the resort has upgraded its many restaurants, bars, and entertainment offerings. Moreover, I have seen the traffic grow firsthand. Locals want to avoid the hustle and bustle of the Las Vegas Strip, and resorts like Red Rock and the company's other properties offer similar, if not better, amenities in our backyards.

Warren Buffett , one of the world's greatest value investors, always advises people to invest in what you know and nothing more. He also said, " It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price ." At around the $50 per share level, RRR is trading at a fair price considering the company's performance. Management has proven that they are on top of the changing demographics in Las Vegas, which continues to grow. So long as RRR loves locals, the community will return the favor.

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