Yahoo Finance Here's Why You Should Retain Red Rock Resorts' (RRR) Stock
Red Rock Resorts, Inc. RRR will likely benefit from development projects, technological enhancements and cost-saving efforts. Focus on new amenities and business optimization measures 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
Red Rock Resorts continues to focus on development projects to drive growth. During the second 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.
Red Rock Resorts benefits from a rise in visitation and strong spending per visit across its portfolio. During the second quarter of 2022, the company witnessed strong visitation and spending across its portfolio. The company has been witnessing favorable customer trends following the reopening of most properties (in June 2020). Strong and consistent visitation from guests (including a younger demographic), increased spending per visit, more time spent on gaming devices and the return of core customers have been adding to the positives. The company intends to offer new amenities to its guests (such as the VIP high-limit table room) and business optimization measures to drive growth in the upcoming periods.
Increased focus on technological enhancements bodes well. 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 upcoming periods.
Red Rock Resorts continues to focus on streamlining operations, optimizing 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.
Concerns
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Shares of the company have declined 4.2% in the past six months compared with the industry’s 0.2% decline. The dismal performance was mainly due to the coronavirus crisis. Although restrictions on operations (to implement social distancing and other health and safety protocols) are lifted, potential resurgences or new virus variants might hurt the company in the upcoming periods. Since the pandemic’s severity, duration and impact cannot be ascertained, the possibility of additional business disruptions, lower customer traffic and reduced operations cannot be ruled out.
The rise in labor and commodity cost continues to hurt the company. During the second quarter, the company witnessed price inflation in ordinary goods and services such as food, supplies, energy and construction costs. It witnessed higher costs due to labor shortages. During the second quarter of 2022, food and beverage expenses increased 18.3% year over year to $57.8 million. Selling, general and administrative expenses during the quarter came in at $90.2 million compared with $84.1 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 Marriott Vacations Worldwide Corporation VAC, Hyatt Hotels Corporation H and Choice Hotels International, Inc. CHH.
Marriott Vacations sports a Zacks Rank #1. VAC has a trailing four-quarter earnings surprise of 13.9%, on average. The stock has declined 5.4% in the past year.
The Zacks Consensus Estimate for VAC’s current financial year sales and earnings per share (EPS) indicates an increase of 19.7% and 131.4%, respectively, from the year-ago period’s reported levels.
Hyatt carries a Zacks Rank #2 (Buy). H has a trailing four-quarter earnings surprise of 798.8%, on average. The stock has increased 25.3% in the past year.
The Zacks Consensus Estimate for H’s current financial year sales and EPS indicates growth of 89.1% and 113%, respectively, from the year-ago period’s reported levels.
Choice Hotels carries a Zacks Rank #2. CHH has a trailing four-quarter earnings surprise of 11.2%, on average. The stock has declined 3.6% in the past year.
The Zacks Consensus Estimate for CHH’s current financial year sales and EPS indicates growth of 25.3% and 21.7%, respectively, from the year-ago period’s reported levels.
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