- Las Vegas operations and redevelopment projects at Palms and Palace Station look to benefit RRR
- High operating expenses and reduced traffic, however, pose a threat
- Red Rock Resorts performances on the gaming segment and non-gaming segment among factors for growth
- The company has ample liquidity for survival in an extended zero revenue scenario
- The company suspends quarterly dividend payouts due to the pandemic uncertainty
Red Rock Resorts looks to benefit from its Las Vegas operations and the redevelopment projects at Palms and Palace Station. Additionally, the company’s balance sheet is strong enough to help cruise over the uncertainties caused by the COVID-19 pandemic. However, a threat is posed by the reduced traffic caused by the pandemic and the high operating expenses.
But, for the time being, why should investors still hold on to the stock? A variety of factors come into play.
Red Rock Resorts growth factors
The company’s Las Vegas operations have played a key role in driving the growth higher over recent years. This is as a result of the top performance Red Rock Resorts boasts on the gaming and non-gaming segments. While the segments’ revenues in the first quarter of 2020 may have dropped during the pandemic, the company is confident enough to get back on track.
Moreover, the company’s heavy reliance on the Palms and Palace Station redevelopment projects is another factor. From the redevelopment projects in 2018 and 2019, solid top-line growth was witnessed by the company. And as it stands, the company is also optimistic about the future performance.
The company has also stated that it currently has ample liquidity to help in the survival in case of an extended zero revenue scenario. In mid-March, almost all of its credit facility of $1 billion was withdrawn. By May 18, RRR had nearly $950 million in cash. And while the company’s long-term debt stood at $4 billion at the end of the first quarter of 2020 as compared to December’s 31 debt at $3 billion, the company has no noteworthy debt maturities until 2025. By the end of the first quarter of 2020, the company has a manageable debt level thanks to the debt-to-capital ratio of 0.9.
Source for concerns
However, the company’s financials in 2020 are likely to be affected by COVID-19 effects. While the company has resumed its operations in most of its properties, the social distancing protocols set out are likely to impact the visitation traffic. As a result of the pandemic crisis, RRR has since suspended quarterly dividend payouts.
There is also concern about the rise of expenses on food and beverage, selling, general, and administrative costs. There was an increase in room prices among other expenses during the first quarter of 2020. And as it stands, the company expects higher operating expenses in the upcoming quarters due to the pandemic.
So far this year, RRR shares have dropped 57.4% compared to the 28.9% decline in the industry.