RRR - Red Rock Resorts: Q3 Earnings As A New Property Set To Open

2023-11-09 13:00:46 ET

Summary

• Red Rock Resorts, Inc. stock corrected after reaching a high in July 2023, presenting a potential buying opportunity.
• Red Rock Resorts experienced a significant gain after the pandemic, but then underwent a correction before recovering.
• The company serves the growing local market in Las Vegas and has shown improved profitability and growth.

In a May 2023 Seeking Alpha article , I wrote, “ 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. ”

Red Rock Resorts, Inc. ( RRR ) was at the $46.43 per share level on May 4, and the stock was trading in a bullish trend, making higher lows and higher highs. After reaching $51.35 in July 2023, RRR corrected and is now at the $41.50 level in early November. The correction could be a buying opportunity as the company rolls out its newest property this month, the Durango Casino and Resort, serving a growing neighborhood in the ever-expanding Las Vegas community.

RRR shares exploded from the March 2020 low to the October 2021 high

The 2020 global pandemic hit the Las Vegas casino industry like a ton of bricks. Closures and uncertainty sent Red Rock Resorts ((RRR)) shares to an all-time $2.76 low.

As Las Vegas, the U.S., and the world emerged from the lockdowns, stimulus checks and the pent-up demand for socializing and entertainment caused RRR and many other casino stocks to explode higher. The chart highlights the rally that took the leading local’s resort company over 2000% higher to a $58.74 peak in late October 2021. RRR bought lots of loyalty in the local market with its treatment of employees, continuing to pay them through the pandemic’s dark days.

The stock corrects and breaks through the $40 level and recovers

The over 2000% gain gave way to a correction that took RRR shares 47.3% lower to $30.98 in July 2022. The stock made higher lows and higher highs after the July 2022 low, recovering to over $50 in June and July 2023 before correcting to a higher $37.82 low on November 1, 2023. The stock rallied to over the $41.50 per share level on November 6 in anticipation of the company’s Q3 November 7 earnings release.

The six-month chart shows the bearish trend, which appears to have ended on a spike low to $37.82 on November 1. RRR shares quickly recovered before the release of its third-quarter earnings.

RRR services a growing number of Las Vegas locals- SA factor grades reflect profitability while denoting weak growth, but they have improved

I have lived in Las Vegas for over a decade, and like many other locals, I rarely visit the Strip. Crowds, traffic, and paying for parking limits visits to the necessary trips when friends and family come to town. Local resorts offer excellent restaurants, entertainment, and gaming, making the Strip redundant. Red Rock Resorts is on the front lines, providing us locals with a host of attractive options instead of traveling to Las Vegas Boulevard.

I live in Summerlin, five minutes from the company’s namesake property, the Red Rock Resort and Casino. Over the past years, RRR has upgraded the property and restaurants as the neighborhood, and its addressable market has grown.

From 2010 through 2021, Clark County , the seat of Las Vegas, experienced the state’s highest growth level with nearly 340,000 more residents. According to the Las Vegas Review-Journal :

Clark County, which includes Las Vegas and its surrounding areas, currently boasts a population of just over 2.3 million residents. In 2022, the rate of population growth slowed to 1.2 percent, resulting in a net increase of approximately 27,800 residents. This growth rate is significantly lower than the average annual growth rate of 2.2 percent, which produced annual increases of 40,400 residents reported during the past 20 years.

In 2010 , Clark County’s population was 1.953 million. Many new residents relocated from California over the past years, increasing the median income and wealth level. Moreover, as a retirement destination, new residents have plenty of leisure time. The median price of homes in Las Vegas in October 2010 was $133,000. In September 2023, the median price was over three times higher at the $425,000 level. The population and wealth growth increases RRR’s addressable market and earnings.

In my May 2023 article, Seeking Alpha had the following factor grades assigned to RRR shares:

On November 9, the report card was as follows:

Valuation, growth, and momentum grades improved, while revisions were slightly worse. An A in profitability is an attractive reason to own RRR shares.

A new property opens in December 2023, servicing the growing local market- Q3 earnings provide a spark

RRR’s luxury properties under its brand name, Stations Casinos, include the Red Rock Casino and Spa and Green Valley Ranch, Resort, Casino and Spa. The company owns and operates Palace Station, Sunset Station, Boulder Station, and Santa Fe Station. RRR also owns Barley’s Casino & Brewery, the Greens, and many “Wildfire” properties offering local gaming under its brand.

According to its website , RRR controls “ six highly desirable gaming-entitled development sites consisting of approximately 354 acres in Las Vegas, Nevada. ”

On December 5, 2023 , RRR will open its latest property, Durango Casino and Resort, serving a growing area of Las Vegas with new home development underserved by the local resort and casino market.

On November 7, RRR released its Q3 results. RRR reported quarterly earnings of $0.60 per share, eclipsing the Zach’s Consensus Estimate of $0.38 per share. RRR has beaten consensus EPS forecasts over the past four consecutive quarters.

The three-month chart highlights the over 14.3% rise in RRR shares from the November 1 low to the November 8 high after the latest earnings release.

Buying the dip is a bet on Las Vegas growth, not necessarily the overall casino sector

RRR’s November 1 spike lower set up the potential for a bullish key reversal at the end of this month.

The monthly chart illustrates RRR shares fell below the October low on November 1 and rallied above the October high on November 8. A close above the $42.67 level at the end of this month would put in a bullish technical reversal pattern.

The first resistance level is the July 2023 $51.35 high. Above there, the target is the October 2021 $58.74 record peak.

RRR’s slogan is “ We love locals ,” the latest earnings show the growing local population is returning the affection. RRR is a unique casino resort company that caters to an expanding addressable market, deserving a higher growth potential score. The $4.4 billion company has lots of upside after delivering four straight better-than-expected results. The November 1 spike lower may turn out to be a golden buying opportunity and a significant bottom.

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