Red Rock Stock Could Feel Election Impact, Says Analyst
Red Rock Resorts' (NASDAQ: RRR) stock has been volatile lately, dropping about 10% in the last ninety days. Weak seasonality resulting from 2024 being a year with a presidential election could be the cause of such.
Deutsche Bank analyst Carlo Santarelli noted in a recent research to clients that while Red Rock's top line expanded by an average of 0.8% over the same period in non-presidential years, the operator's fourth-quarter gaming revenue was squeezed to the tune of 1% in previous presidential election years. Beyond that seasonal pattern, Red Rock might profit from the no-tips tax policy that former President Donald Trump (R) first proposed and Vice President Kamala Harris (D) eventually adopted.
"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.
According to the analyst, Red Rock may save up to $3 million in payroll expenses annually if the policy is put into place.
Analyzing Red Rock's Plans for Growth
Although it's unclear if the election is having an impact on the operator's ambitions to expand, Santarelli expects Red Rock's plans in the Las Vegas Valley to change somewhat.
According to the analyst, the construction of the new Cactus Lane casino hotel close to the South Point and the expansion of the Durango Casino & Resort in Southwest Las Vegas will be the gaming company's top priorities in 2025. The planned casino hotel in Henderson, Nevada's Inspirada community will come in second.
“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 Federal Reserve cut interest rates by 50 basis points last month and is predicted to cut borrowing costs by an additional 100 basis points by the second quarter of 2025, creating a more favorable climate for Red Rock to expand its venues and strengthen its existing assets.
Long-Term Catalysts in Red Rock
Although Red Rock's stock has underperformed this year, it has longer-term drivers such as the company's foray into the gambling tavern market in Las Vegas, its appealing Sin City demographics, and its competitive price.
“For longer-term-oriented investors, we would note that this valuation methodology understates the equity value inherent in the likely development returns,” observed Santarelli.
Additionally, the analyst said that when the facility ramps up, Red Rock's management deal for a tribal casino in Central California may provide an additional $40 million to $50 million in revenue annually. In Madera, California, the North Fork Mono Casino & Resort is now being built with an anticipated 2026 opening date.
