Red Rock Resorts' Valuation Presents A Level Of Asymmetric Downside Risk; Stifel Downgrades

Upside in Red Rock Resorts Inc RRR is limited in the near term, according to one analyst.

The Analyst

Stifel analyst Steven Wieczynski downgraded Red Rock Resorts from Buy to Hold but raised his price target from $29 to $37.

The Thesis

A robust local economy is likely to continue support outsized growth in the Las Vegas Locals gaming market, while Red Rock Resort is increasingly likely to deliver mid-teens or higher returns on the Palace Station and Palms redevelopment projects, Wieczynski said in a note. However, these positives are already reflected in the stock's valuation.

With shares trading at about 11 times Stifel's 2020 forecast, the firm sees asymmetric risk to the downside, driven by any unforeseen delays in the Palms overhaul, a longer-than-anticipated Palms margin ramp or changes in prevailing LVL market conditions over the next several years.

Given the lack of any transformational catalyst that's not already priced into shares, Stifel sees the stock, at best, trading in a relatively narrowly defined range around the share price in the foreseeable future.

"Although we are confident in the Palms acquisition over the longer term, we would prefer to have a bigger buffer built into the valuation to dampen the impact of any unforeseen deviations from plan, were they to occur," the firm said.

The Price Action

Red Rock Resorts shares are up about 47 percent over the past year.

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