On Wednesday, Deutsche Bank reaffirmed its Buy rating on Red Rock Resorts (NASDAQ:RRR), maintaining a price target of $65.00. The firm's stance comes after hosting the management of Red Rock Resorts for investor meetings over two days.
The analyst noted that despite a choppy quarter-to-date performance, where the company's shares have not kept pace with its peers, the underlying business trends remain stable.
The report highlighted several key observations from the meetings. The Las Vegas locals market, which is a significant segment for Red Rock Resorts, is perceived as stable with the high-end segment showing particularly strong performance.
This trend is seen as a positive indicator for the company's relative standing in the market. Additionally, the promotional environment for local customers has been active but consistent, without any notable changes from the previous sequence.
The valuation of Red Rock Resorts was also mentioned as attractive, with the company offering an approximate 10% free cash flow yield on its core operations. This metric is used by investors to gauge the efficiency and profitability of a company's fundamental business activities.
Furthermore, the analyst underscored the unique position of Red Rock Resorts in terms of its development pipeline within the gaming industry. Among the projects underway, the North Fork project, which is expected to open in 2026, was singled out as a particularly undervalued asset within the company's equity. The analyst expressed confidence in the project's potential and its current underestimation in the market.
In conclusion, Deutsche Bank's reiterated Buy rating and price target suggest they see about a 20% upside from the current levels, indicating a robust confidence in the future performance of Red Rock Resorts.
In other recent news, Red Rock Resorts has been making significant strides in its financial performance. The company's second-quarter 2024 results reported revenue of $486 million and EBITDA of $202 million, exceeding consensus estimates and marking a 3% increase in both metrics.
These results have been attributed to the successful integration of the Durango property, which is expected to deliver a 20% return on investment in its first year. In addition to its current success, Red Rock Resorts has announced plans for a Phase 2 expansion of the Durango property, projected to be completed by the end of 2025.
This expansion, costing approximately $100 million, is part of the company's strategic growth initiatives. Macquarie and Susquehanna have raised their price targets for Red Rock Resorts, reflecting their confidence in the company's potential for continued growth, while Truist Securities adjusted their price target down due to valuation concerns. Despite the company's positive performance, Truist Securities expects a 3% decrease in EBITDA for the second half of the year 2024.
InvestingPro Insights
Red Rock Resorts (NASDAQ:RRR) has demonstrated resilience in the face of market fluctuations, as evidenced by a stable underlying business trend. The company's impressive gross profit margins, which stood at 62.81% in the last twelve months as of Q2 2024, reflect a robust operational efficiency. This aligns with the observations from Deutsche Bank's investor meetings, highlighting the company's strong performance, particularly in the high-end segment of the Las Vegas locals market.
Investors may also take note of Red Rock Resorts' commitment to shareholder returns, with the company maintaining dividend payments for 9 consecutive years, boasting a dividend yield of 3.73% as of the last recorded date. Moreover, the stock's price movements have been quite volatile, which could present opportunities for investors with a higher risk tolerance. With a market capitalization of $5.65 billion and a forward Price/Earnings ratio of 17.72, the company's valuation metrics provide a comprehensive picture for potential investors.
For those seeking additional insights, there are more InvestingPro Tips available, including analyses on the company's Price/Book multiple and predictions on profitability for the year. These tips can be accessed through InvestingPro's dedicated service for further investment strategies.
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