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Here's Why You Should Retain Red Rock Resorts' (RRR) Stock

Red Rock Resorts, Inc. RRR will likely benefit from Las Vegas operations, development projects and cost-saving efforts. Also, focus on digitalization initiatives bodes well. However, a rise in labor and commodity costs is a concern.

Let us delve deeper into factors highlighting why investors should hold on to the stock for the time being.

Factors Driving Growth

The company’s Las Vegas operations have been a key growth driver in the past few quarters, which is likely to continue in the coming quarters. The company is bullish on the long-term view owing to favorable supply-demand dynamic, positive long-term trends in population growth and a stable regulatory environment. Attributes like best-in-class assets and locations, unparallel distribution and scale and a solid organic development pipeline (of six-owned gaming and title development sites) are likely to drive the company’s performance in the upcoming periods.

Red Rock Resorts continues to focus on development projects to drive growth. Following a favorable decision from the California Supreme Court (in August 2020), Red Rock Resorts focused more on the North Fork development project. The project completion costs, excluding any financing costs, are expected in the range of $350-$400 million. The company stated that the project is currently in the planning and budgeting stage. RRR is concentrating on 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. In January 2022, the company received a permit to begin the project’s construction. The estimated duration for construction is anticipated to be between 18 and 24 months.

Red Rock Resorts continues to focus on initiatives such as streamlining of operations, optimization of marketing initiatives and renegotiating vendor and third-party agreements 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.

The company continues to make substantial progress related 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 over the next two quarters.

Concerns

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Shares of the company have plunged 33.3% in the past three months compared with the industry’s 29.6% decline. The dismal performance was mainly due to the coronavirus crisis. Although the company is witnessing increasing visitation by younger demographics, it is being negated by higher carry costs associated with its closed properties (approximately $2.1 million). The unprecedented nature of the crisis is likely to affect the company’s results going forward.

The rise in labor and commodity cost continues to hurt the company. During the first quarter, the company witnessed price inflation in ordinary goods and services such as food, supplies, energy and construction costs. Also, it witnessed higher costs due to labor and supply chain shortages. Selling, general and administrative expenses during the quarter came in at $86.3 million compared with $78.9 million reported in the prior-year quarter. The company intends to focus on cost-control measures 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 Bluegreen Vacations Holding Corporation BVH, Civeo Corporation CVEO and Boyd Gaming Corporation BYD.

Bluegreen Vacations sports a Zacks Rank #1. BVH has a trailing four-quarter earnings surprise of 85.9%, on average. The stock has increased 42.5% in the past year.

The Zacks Consensus Estimate for BVH’s current financial year sales and earnings per share (EPS) indicates growth of 11.2% and 35.1%, respectively, from the year-ago period’s reported levels.

Civeo sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 1,565.1%, on average. Shares of the company have increased 35% in the past year.

The Zacks Consensus Estimate for CVEO’s 2022 sales and EPS suggests growth of 12.5% and 1,450%, respectively, from the year-ago period’s levels.

Boyd Gaming carries a Zacks Rank #2 (Buy). BYD has a trailing four-quarter earnings surprise of 24.2%, on average. Shares of the company have declined 17.2% in the past year.

The Zacks Consensus Estimate for Boyd Gaming’s current financial year sales and EPS suggests growth of 3% and 6.8%, respectively, from the year-ago period’s reported levels.


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