RRR - Red Rock Resorts is named a best idea long at Hedgeye

Hedgeye adds Red Rocks Resorts ( NASDAQ: RRR ) as a best idea long pick.

Analysts Todd Jordan and Sean Jenkins said research and analysis suggest that RRR offers some protection from the potentially negative impact to consumer spending from the wealth effect.

"The wealth effect tailwind could turn negative next year which should have implications for the consumer. However, RRR is on much better footing than most consumer companies – its core customers are confined to a single, high population growth market, and their wealth determined mostly by real estate wealth. While we wouldn’t be surprised to see housing price pressure, Las Vegas homeowners have built so much positive equity that it would take quite the downturn before the core gaming customer to feel a negative wealth effect."

Hedgeye's research suggests June was yet another solid months for the casino operator despite macro headwinds for consumers, which sets up the company for a solid Q2 earnings report. Looking ahead, Hedgeye is positive on the outlook for margins with RRR's flow through the highest in the country and with most of the incremental revenue growth associated with slot play. Labor inflation is also seen as less of an issue for RRR and regional gamers than other consumer sectors including hotels.

The firm sees upside to its $55 price target on RRR based off a sum-of-the-parts analysis.

The Seeking Alpha Quant Rating on Red Rock Resorts is set at Hold.

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