Posted on: August 10, 2022, 12:45h.
Last updated on: August 10, 2022, 01:34h.
Shares of Red Rock Resorts (NASDAQ:RRR) are trading higher today after the casino operator delivered what analysts are calling strong second-quarter results. But the big story is the operator’s plan to double its Las Vegas footprint by 2030.
Red Rock is already one of the dominant operators geared toward Las Vegas locals. In addition to its namesake venue in Summerlin and Green Valley Ranch in Henderson, Red Rock operates multiple gaming properties under the Station brand throughout the Las Vegas area. The company also runs 10 Wildfire casinos, including seven in Henderson, according to its website.
We have an unparalleled growth story that will allow us to double the size of our portfolio and position us to capitalize on the very favorable long-term demographic trends and high barriers to entry that characterize the Las Vegas locals market,” said CFO Stephen Cootey on a conference call with analysts.
Last month, Red Rock announced the purchase of 126 acres of land south of the Strip for $172 million — boosting its unused land holdings in the Las Vegas Valley to nearly 430 acres. The company often acquires real estate years or decades before commencing new projects.
Red Rock Betting on Las Vegas Locals
In a prior era of Las Vegas’s growth, local casino operators such as Red Rock heavily depended on construction workers and staffers from Strip venues.
While those demographics still frequent local gaming establishments, the Las Vegas locals thesis now receives significant ballast from the region’s influx of new residents from high-tax states, including California. Many of those new Sin City residents pay cash for real estate. Combine that with their savings on income tax — Nevada doesn’t have one — and they have the resources to indulge in casino visits.
Fueled by ongoing migration from high-cost living states, Nevada’s population is expected to swell in the years ahead, with much of that growth occurring in the Las Vegas Valley. As such, some analysts are bullish on Red Rock’s long-term story.
“While there could be near-term hesitancy to buy RRR shares for several macro-related reasons, longer-term, we continue to believe spending/visitation trends will remain relatively healthy across the Las Vegas locals market, while RRR’s diminishing cost structure should ultimately allow for greater flow through,” wrote Stifel analyst Steven Wieczynski in a note to clients.
He rates Red Rock a “hold,” with a $45 price target, down from $50.
Speaking of Real Estate
Red Rock owns all of the land on which its casinos reside. Combine that with the aforementioned unused acres, and the operator has a deep real estate portfolio that investors may not be appropriately valuing.
Their average land holding is worth ~$1.2M per acre, which, to us, is well below what investors are currently embedding in the current share price. We aren’t saying all of their ~650 acres would get sold for that amount per acre, but there are clearly parcels of land out in their portfolio which aren’t getting the full recognition from investors they probably should be,” Wieczynski added.
The company’s ability to fetch prime pricing for some of its property will be tested when it sells the associated real estate after demolishing Fiesta Henderson, Fiesta Rancho, and Texas Station.