Red Rock Resorts EBITDA Should Get Lift from Durango, Says Analyst

Slated to open later this year, Durango Casino Resort in southwest Las Vegas will drive Red Rock Resorts’ (NASDAQ: RRR) earnings before interest, taxes, depreciation, and amortization (EBITDA) higher in the years ahead.

That’s the take of Stifel analyst Steven Wieczynski, who in a new report to clients rated Red Rock “hold” with a $54 price target, implying upside of 15.7% from current levels. While the analyst pared near-term earnings estimates on Red Rock, he raised further out forecasts on expected strength from Durango.

We are raising our 2024/2025 EBITDA estimates as we believe our previous estimates were too conservative around the opening and ramp of RRR’s Durango project,” wrote Wieczynski. “Durango opening should be a catalyst, and we believe shares can work into that opening date.”

Red Rock believes will be successful because it’s in one of the few areas of Las Vegas that isn’t densely populated with gaming venues. If anything, the area where the venue is being built is underserved. The casino will feature 73,000 square feet of gaming space, a sportsbook, 2,000 gaming machines, and 40 table games.

In addition to its namesake venue in Summerlin and the Green Valley Ranch in Henderson, Red Rock operates multiple gaming properties throughout the Las Vegas area. The company also runs 11 Wildfire casinos, including seven in Henderson, according to its website.

That s to say, as measured by number of venues, Red Rock is one of the largest operators in the Las Vegas Valley, despite not owning a Strip integrated resort. Additionally, the company is looking to double its footprint in its home city over the next decade, indicating it s bullish on the trajectory of the Las Vegas locals segment.

“The overall fundamentals in the LV Locals market continue to be healthy. We believe part of that strength is due to continued higher population/wage growth as well as favorable supply/demand dynamics,” added Wieczynski. “Moving forward, we don’t see any reason why those strong fundamentals shouldn’t continue.”

An influx of affluent retirees from other states, namely neighboring California, bolsters the long-term case for Red Rock shares, because many of those consumers have the capability to pay cash for Las Vegas real estate. Combine the elimination of mortgage obligations with lower property taxes and no state income tax in Nevada, and they have the discretionary cash to Red Rock-operated casinos.

Essentially, all regional casino operators, including Red Rock, improved margins in the aftermath of the coronavirus pandemic. However, analysts pondered for how long that theme would last, and there is some evidence it’s waning.

Specific to Red Rock, the operator maintains solid margin growth despite a difficult labor pool in Las Vegas. At the end of May, Nevada’s unemployment rate was 5.4%, the highest in the country.

“We think this story becomes more attractive by the day and while we model flattish margins moving forward, if we are wrong, shares are massively undervalued at current levels,” concluded Wieczynski.