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Red Rock Resorts (NASDAQ: RRR) reiterated to analysts and investors that it expects to spend $375 million to $425 million this year with $275 million to $300 million of those expenditures deemed invested capital.
The bulk of that spending will be directed to the latest expansion at the Durango Casino & Resort in Southwest Las Vegas, Green Valley Ranch and Sunset Station. While there’s been some construction disruption at Durango – a venue that’s rapidly become one of the operator’s crown jewels – Red Rock says the Durango North expansion is progressing nicely and slated to be finalized in the back half of next year.
“The continued strength of our existing property, together with the significant residential growth occurring in the Southwest Las Vegas reinforces our confidence in the expansion and its long-term growth prospects,” said CFO Stephen Cootey on a conference call with analysts. “Just as importantly, Durango continues to validate our approach to capital allocation, and we believe this expansion will further strengthen the property’s competitive position, expand the Las Vegas locals market, gain market share and generate superior long-term shareholder value.”
The project updates were delivered in conjunction with Red Rock’s second-quarter earnings report. For the June quarter, the gaming company posted modest declines in revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) with some of the shortfall attributable to construction interruption.
Red Rock Making Progress at GVR, Sunset Station, Too
Looking at Green Valley, for which Red Rock announced a major facelift in 2023, disruption for the current quarter will be an estimated $3 million, but strides are being made.
“RRR is making progress on the full hotel product renovation. The west tower and convention space have reopened, with the east tower back online in September,” notes Truist Securities analyst Barry Jonas.
After that, Red Rock will turn to improving the casino floor at Green Valley Ranch and bolstering the property’s food and beverage portfolio. At Sunset Station, completed improvements are already paying dividends and more amenities are slated to be available before the end of this year.
“RRR will then look to execute the next phase of the development, with enhancements to movie theaters, a bingo relocation, and the redevelopment of buffet space into a steakhouse with high limit areas. This phase will be completed into 2027, with a total cost of $87 million (~$140 million total spend on property),” said Jonas of Sunset Station.
Wall Street Remains Fond of Red Rock
While Red Rock’s second-quarter results were tepid, Wall Street remains bullish, noting the stock is one of the best, if not the top, ways for investors to play the burgeoning Las Vegas locals market. Jonas rates the gaming equity a “buy” with a $75 price target, well above the closing price of $64.27 today.
Stifel analyst Steven Wieczynski is similarly constructive on Red Rock, rating the shares a “buy” with a $74 price target while praising the operator for owning its real estate and highlighting the vibrancy of the Las Vegas locals segment.
“We continue to see a compelling long-term case to own RRR based on (1) continued strength emerging out of the LVL market driven by strong/healthy demographics, (2) potential LVL market share gains due to superior assets, (3) untapped/undeveloped land bank which gives the company optionality, and (4) best-in-class growth profile across our gaming coverage,” observes the analyst.