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

Red Rock Resorts, Inc. RRR is likely to benefit from Las Vegas operations, development projects and cost-saving efforts. Also, emphasis on digitalization initiatives bodes well. In the past year, the stock has gained 27.7% against the industry’s 52.2% decline. However, a rise in COVID-related mitigation and carry 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 and the trend is likely to continue in the coming quarters. The company is bullish on 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 along with a solid organic development pipeline are likely to drive the company.


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Following a favorable decision from the California Supreme Court (in August 2020), Red Rock Resorts focused more on the North Fork development project. The cost of completion of this project, excluding any financing costs, is expected in the range of $350-$400 million. The company stated that the project is currently in the planning and budgeting stage. RRR has been focusing on the Durango development project. Located off the 215 Expressway and Durango Drive in Southwest Las Vegas Valley, the project is likely to cover 71 acres in the area comprising 73,000 square feet of casino space, 2,000 slots and 46 table games, a state-of-the-art sports book, 200 hotel rooms along with four full-service food and beverage outlets. The company remains optimistic about this development pipeline owing to the location. Also, 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 construction of the project. The estimated duration for construction is anticipated between 18 months 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.

Red Rock Resorts continues to make substantial progress with respect to cashless gaming. During fourth-quarter 2021, the company completed field trials with IGT (at Red Rock and Green Valley branch properties) with respect to cashless payments on the slot floor. Also, the company initiated the rollout of the product at the remaining Las Vegas properties. With increased focus on a single mobile digital wallet access for playing and paying purposes, the company intends to implement the product at each of its properties over the next two quarters. Apart from this, the company entered into a partnership with GAN Limited (in October 2021) to build and deploy the next-generation infrastructure stations STN Sports online sports platform, mobile applications and retail over-the-counter and kiosk-based sports betting throughout Nevada. The company stated that the product launch is subject to regulatory approvals.

Concerns

The Gaming industry is currently grappling with the coronavirus pandemic and Red Rock Resorts isn’t immune to the trend. Issuance of mask mandates by government authorities and resurgence of the Omicron virus affected the visitation by older demographics during fourth-quarter 2021. Although the company is witnessing increasing visitation by younger demographics, it is being negated by higher COVID-related mitigation costs (nearly $2.6 million) and carry costs associated with its closed properties (approximately $2 million). The unprecedented nature of the crisis is likely to negatively impact the company’s results going forward.

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 Consumer Discretionary sector include Funko, Inc. FNKO, Bluegreen Vacations Holding Corporation BVH and Marriott International, Inc. MAR.

Funko sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 96.2%, on average. Shares of the company have declined 11.1% in the past year.

The Zacks Consensus Estimate for Funko’s current financial-year sales and EPS (earnings per share) suggests growth of 22.7% and 26.8%, respectively, from the year-ago period’s levels.

Bluegreen Vacations carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 425.1%, on average. Shares of the company have surged 55.2% in the past year.

The Zacks Consensus Estimate for Bluegreen Vacations’ current financial-year sales and EPS indicates growth of 8.3% and 20.8%, respectively, from the year-ago period’s levels.

Marriott carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 86.6%, on average. Shares of the company have gained 6.7% in the past year.

The Zacks Consensus Estimate for Marriott’s current financial-year sales and EPS indicates growth of 40.3% and 73%, respectively, from the year-ago period’s levels.


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Marriott International, Inc. (MAR): Free Stock Analysis Report
 
Red Rock Resorts, Inc. (RRR): Free Stock Analysis Report
 
Funko, Inc. (FNKO): Free Stock Analysis Report
 
Bluegreen Vacations Holding Corporation (BVH): Free Stock Analysis Report
 
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