Red Rock Resorts (NASDAQ: RRR) possesses multiple favorable fundamental drivers that could make it one of the more attractive long-term opportunities among casino equities. That’s the sentiment of Jefferies analyst Cassandra Lee who initiated coverage of the gaming company today with a “buy” rating and a 12-month price target of $50, implying upside of about 31% from current levels.
“Although time risk and macro uncertainties persist, the company’s balance sheet has largely been derisked, allowing it to grow one step at a time while simultaneously returning capital to shareholders,” Lee wrote in a note to clients.
The operator is one of the industry’s most impressive shareholder rewards stories.
Late last year, Red Rock announced a $3 per share special dividend and repurchased more than $350 million worth of its own shares via a Dutch auction.
Its quarterly payout of 25 cents per share and dividend yield of 2.68% is among the highest in the gaming industry.
Red Rock Treasure Trove of Real Estate Assets
In addition to its namesake venue in Summerlin and the 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.
One of the primary reasons some analysts are enthusiastic about Red Rock is the company’s vast real estate holdings throughout the Las Vegas Valley and Reno. Those include several hundred acres of undeveloped land.
Given the price points at which Las Vegas real estate fit for casino-resorts trade at and Red Rock’s market capitalization of $3.95 billion, it’s not a stretch to say the investment community isn’t fully appreciating the operator’s property assets.
“Red Rock presents a compelling growth story, in our view, with valuable real estate assets strategically located across a booming area of Las Vegas,” added Lee.
She said its property portfolio positions Red Rock to potentially double the number of large integrated resorts it runs by 2030 while driving earnings before interest, taxes, depreciation, and amortization (EBITDA) higher by 70%.
Last week, the company announced its closing of the Wild Wild West Gambling Hall & Hotel and that it will likely redevelop that venue into a higher-end casino-hotel. The company owns 100 acres around that venue.
In July, the operator 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.
Bullish on Golden Entertainment, Too
Lee is also constructive on Golden Entertainment (NASDAQ: GDEN). The analyst started coverage of that stock with a “buy” rating and a $64 price forecast, implying an upside of 68% from current levels.
The analyst cited Golden’s “balance sheet strength and strong fundamentals” as catalysts for the shares.
She added the company’s recently announced $260 million sale of the Rocky Gap Casino Resort in Flinstone, Md., could accelerate its growth story and its plans to return capital to shareholders.
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