Posted on: October 9, 2024, 03:24h.
Last updated on: October 9, 2024, 03:24h.
Shares of Red Rock Resorts (NASDAQ: RRR) have recently scuffled, shedding almost 10% over the past 90 days. That could be the result of weak seasonality stemming from 2024 being a presidential election year.
In a new report to clients, Deutsche Bank analyst Carlo Santarelli pointed out that in prior presidential election years, Red Rock’s fourth-quarter gaming revenue was pinched to the tune of 1%, but in the same period in non-presidential years, the operator’s top line grew by an average of 0.8%. Beyond that seasonal trend, it’s possible Red Rock could benefit from the no tax on tips policy originally floated by former President Donald Trump (R) and later mimicked by Vice President Kamala Harris (D).
Anecdotally, we believe the ‘no tax on tips’ policy, should it ultimately become reality, would help [Red Rock] both from a revenue perspective, given the incremental discretionary spend potential of gaming customers in Las Vegas and the exposure to the service industry,” noted Santarelli.
The analyst added that if the policy is implemented, Red Rock could save as much as $3 million in yearly payroll costs.
Examining Red Rock Expansion Plans
It’s not clear if the election is affecting the operator’s expansion efforts, but Santarelli anticipates there will be some shifts in Red Rock’s plans in the Las Vegas Valley.
The analyst believes the gaming company’s priorities for 2025 will be development of the new Cactus Lane casino hotel near the South Point and expansion at the Durango Casino & Resort in Southwest Las Vegas with the planned casino hotel in the Inspirada community in Henderson, Nev. behind the first two on the operator’s priority list.
“We believe the primary drivers of the pecking order relate to population growth in the local zones around the development, as well as, to a lesser extent, the experience from Durango related to the cannibalization circles,” added Santarelli.
The environment could be more favorable for Red Rock to add new venues and bolster established properties because the Federal Reserve lowered interest rates by 50 basis points last month and is expected to pare borrowing costs by another 100 basis points by the second quarter of 2025.
Red Rock Has Long-Term Catalysts
Red Rock stock has been a laggard this year, but it has longer-ranging catalysts, including the company’s entry into the Las Vegas gaming tavern arena, compelling Sin City demographics, and an attractive valuation.
“For longer-term-oriented investors, we would note that this valuation methodology understates the equity value inherent in the likely development returns,” observed Santarelli.
The analyst also pointed out that Red Rock’s management agreement pertaining to a Central California tribal casino could result in $40 million to $50 million in new annual revenue when that property ramps up. The North Fork Mono Casino & Resort in Madera, Calif. is under construction and is slated to open in 2026.
