Local Migration And Upgrades Will Energize Las Vegas Resorts

Key Takeaways

• Expansion into fast-growing neighborhoods and upgraded properties is attracting younger, higher-value guests, boosting market share and margins.
  
• Local population growth, tax benefits, and a robust land pipeline position the company for sustained revenue growth and financial flexibility.
  
• Strategic focus on Las Vegas, high capital spending, demographic changes, digital competition, and environmental risks all threaten Red Rock Resorts' long-term revenue growth and profitability.

Catalysts

Through its interest in Station Casinos LLC, develops and manages casino and entertainment properties in the United States.

• Strong migration and household growth in the Las Vegas Valley, particularly in areas like Summerlin and Henderson, is driving a sustained expansion of the local customer base, which directly supports ongoing increases in visitation, gaming volume, and spend per visit-positively impacting long-term revenue and EBITDA growth.
  
• The successful rollout and ramp-up of new properties like Durango, combined with major upgrades to existing properties in rapidly growing neighborhoods, are enabling Red Rock Resorts to attract younger demographics and higher-value guests, expanding market share and supporting both revenue and margin expansion.
  
• Upgraded amenities, high-limit gaming areas, and refreshed food and beverage concepts are broadening appeal and increasing spend, particularly among under-35 customers and VIP segments, which strengthens top-line growth and improves net margins.
  
• Favorable recent and upcoming tax legislation is set to boost local discretionary income for Red Rock's customer base, while accelerated depreciation and other tax relief measures will increase free cash flow, providing flexibility for capital returns and reducing leverage, which supports higher EPS and balance sheet strength.
  
• The company's large land bank and disciplined approach to new development projects in high-barrier-to-entry locations uniquely position Red Rock Resorts to capitalize on the growing preference for local, integrated resort experiences, providing a multi-year pipeline for revenue and EBITDA expansion.

Red Rock Resorts Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Red Rock Resorts's revenue will grow by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 10.4% in 3 years time.
• Analysts expect earnings to reach $215.5 million (and earnings per share of $1.92) by about July 2028, up from $156.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $239.1 million in earnings, and the most bearish expecting $164.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.3x on those 2028 earnings, up from 20.9x today. This future PE is greater than the current PE for the US Hospitality industry at 22.6x.
• Analysts expect the number of shares outstanding to grow by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.52%, as per the Simply Wall St company report.

Red Rock Resorts Future Earnings Per Share Growth

Risks

• Red Rock Resorts' heavy reliance and concentration in the Las Vegas locals market exposes it to heightened risk from any local economic downturns, which could lead to unpredictable swings in revenue and earnings.
  
• The company's ongoing and upcoming large-scale capital expenditures on multiple property expansions and renovations (Durango, Green Valley Ranch, Sunset Station, and North Fork) present sustained capex requirements that may suppress free cash flow and pressure net margins, especially if returns do not materialize as projected or if there are delays or cost overruns.
  
• Demographic shifts, including the potential reduced interest in traditional casino gaming among younger generations-despite recent database growth-may limit long-term visitation growth and per-customer revenue, impacting top-line performance over time.
  
• Accelerating digital transformation in gambling, such as the rise of online casinos and sports betting, could erode the market share of Red Rock's brick-and-mortar casinos, slowing same-store sales growth and diminishing future revenue streams.
  
• Climate and regulatory pressures related to water and energy usage, heightened by Las Vegas's geographic and environmental context, could increase operating costs and capex requirements, compressing operating margins and posing a long-term threat to profitability.

Valuation

• The analysts have a consensus price target of $57.769 for Red Rock Resorts based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $67.0, and the most bearish reporting a price target of just $44.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $215.5 million, and it would be trading on a PE ratio of 36.3x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of $55.01, the analyst price target of $57.77 is 4.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.