A Wall Street analyst lowered his projections for Red Rock Resorts and its stock price target, based on Boyd Gaming having missed consensus earnings and reporting a softness in Las Vegas, especially with low-end customers.
Ahead of Red Rock’s first-quarter report on May 7, Joseph Greff with J.P. Morgan wrote Monday in a note to investors, “We are reassessing our consensus 2024 forecasts for Red Rock Resort in light of Boyd’s soft first-quarter performance in its Las Vegas locals segment, where it highlighted certain competition (interestingly, more so from non-Red Rock properties) and retail and lower-end of the database consumer softness.”
The firm is trimming its 2024/2025 EBITDA estimates by 3% and 2%, respectively, Greff said. Red Rock opened its Durango Casino & Resort in the southwest Las Vegas valley in December and analysts have said for months it’s a boost for the company.
Earlier this month, J.P. Morgan lifted estimates on Red Rock, citing stronger-than-anticipated results for Durango. At the time, it increased its price target from $63 to $69.
On Monday, Greff said they maintain their overweight rating and based on estimated reductions, their year-end 2024 price target drops to $63, down from $69. That offers about 18% upside from current levels.
“While we don’t think our embedded Durango EBITDA contribution has risk, nor do we see Red Rock property cannibalization differently than before, we do think it is safe to assume Red Rock’s non-higher-end properties (a much lower percent of total than Boyd’s) have risk on a locals consumer slow-down and want to take the risk out of our forecast.”
Red Rock Resorts traded above $59 on Thursday before Boyd announced its first-quarter earnings, then closed just above $54 on Friday and $55.02 on Monday. After trading just below $63 at the close on Thursday, Boyd stock dipped as low as $52.64 during the day Friday and closed Monday at $53.95.
“Recall that Red Rock Resort’s shares were down 9% on Friday on Boyd’s quarterly results and Las Vegas locals commentary,” Greff said.
Greff said they project first-quarter property-level EBITDA of $229 million or $210 million net of corporate expenses. It was previously $222 million. The firm projected full-year-2024 property-level EBITDA of $896 million ($818 million of corporate expenses compared to previous estimate of $841 million).
For 2025, Greff said they see $841 million of EBITDA net of corporate expenses, down from its prior $860 million.
“Red Rock Resorts reports on May 7. We expect to hear very positive things about Durango, though we do note that the quarter ended on a softer market-wide performance,” Greff said.
Greff said their price target is based on “9.5x 2025E EV/EBITDA” plus a land-value estimate of $662 million ($1.5 million an acre for its development land), less net debt adjusted for construction in progress.
“Our price target implies that Red Rock Resorts can trade at about 7.3% FCF yield on our 2024 estimate of $4.60 per share by the end of this year,” Greff wrote. “As well, our price target implies a 10.3x 2025E EV/EBITDA multiple, giving zero value for its land bank and an 8.7% FCF yield adjusting for our estimated value of its land bank.”
At current levels, Red Rock Resort trades at 10.6x 2024E EV/EBITDA and 9.4x 2025E EV/EBITDA (or 9.8x and 8.6x, excluding the value of its land bank), Greff said.
Greff said they think that Red Rock Resort’s sole market, Las Vegas locals, is attractive, given continued population growth, an improving mix of higher income earners, and a development land bank with Beltway access in high-population-growth and high-income communities with limited or no gaming competition.
