{"id":107066,"date":"2019-06-17T18:20:28","date_gmt":"2019-06-18T01:20:28","guid":{"rendered":"https:\/\/www.casino.org\/news\/?p=107066"},"modified":"2019-06-17T18:25:28","modified_gmt":"2019-06-18T01:25:28","slug":"analyst-sees-interesting-story-with-red-rock-likes-boyds-cash-flow","status":"publish","type":"post","link":"https:\/\/www.casino.org\/news\/analyst-sees-interesting-story-with-red-rock-likes-boyds-cash-flow\/","title":{"rendered":"Analyst Sees ‘Interesting Story’ With Red Rock, Likes Boyd’s Cash Flow"},"content":{"rendered":"

Red Rock Resorts Inc. (NASDAQ: RRR), the operator of 20 casinos, could be a compelling bet for investors in the future. But at least one analyst sees some difficulties in estimating the impact of the company’s efforts to ramp up the Palms Las Vegas following an expensive renovation of the off-Strip property.<\/p>\n

\"\"
Red Rock’s efforts to ramp up the Palms Las Vegas could prove tricky for the stock. (Image: Palms Las Vegas)<\/figcaption><\/figure>\n

Wolfe Research analyst Jared Shojaian initiated coverage of Red Rock Resorts shares with a \u201cpeer perform\u201d rating, which is the equivalent of a \u201chold.\u201d<\/p>\n

In a note out last Friday, Shojaian said Red Rock \u201cis an interesting story, but we\u2019re initiating with a Peer Perform rating largely because of our concerns that consensus estimates may be too aggressive with difficulty forecasting the Palms ramp.\u201d<\/strong><\/span><\/p><\/blockquote>\n

Las Vegas-based Red Rocks is close to finalizing $881 million in refurbishments at the Palms and the Palace Station, another Las Vegas off-Strip gaming property<\/a>. The company acquired the Palms in 2016 for $312.5 million and the effort to add new clubs and dining options while updating the venue’s gaming floor and guest rooms has proven costly<\/a>.<\/p>\n

\u201cRRR is now entering harvest mode \u2013 on our 2020 estimates we calculate a robust 14% free cash flow yield,\u201d said Shojaian.<\/p>\n

\u201cHowever, there is inherently more forecast error forecasting (sic) the ramp at Palms, returns on the renovation could disappoint given it\u2019s more of a hybrid property, and we fear there is risk out-year estimates could be too aggressive,\u201d he added.<\/p>\n

Near-Term Risks<\/strong><\/h2>\n

As Shojaian points out, Red Rock derives 14 percent of its earnings before interest, taxes, depreciation and amortization (EBITDA) from managing the Graton Resort & Casino, a tribal gaming property<\/a> near Rohnert Park, California.<\/p>\n

That management deal expires in November 2020 and Shojaian does not see it being renewed. Red Rock’s Graton pact could be replaced with a similar accord to run a new project known as North Fork, a proposal by California’s Mono tribe to build a casino off highway 99 near Madera. North Fork has been slowed by legal wranglings and may not even come to fruition.<\/p>\n

Over the near-term, Red Rock may prioritize deleveraging its balance sheet, according to Shojaian. At the end of the first quarter, the company had $109.2 million in cash on hand, but $3 billion in debt.<\/strong><\/p>\n

\u201cIn the near-term we also expect RRR to prioritize deleveraging,\u201d said the Wolfe Research analyst. <\/span>\u201cHistorically RRR has not aggressively returned capital, and we may see additional development opportunities take priority over share repurchases.\u201d<\/span><\/p>\n

Like many of its larger peers<\/a>, Red Rock pays a dividend, but the quarterly payout of 10 cents a share has not increased since it was started in 2016.<\/p>\n

Bet On Boyd <\/strong><\/h2>\n

In a separate note, Shojaian started coverage of Boyd Gaming Corp. (NYSE: BYD) with an \u201coutperform\u201d rating and a $37 price target, well above last Friday’s close of $26.36.<\/p>\n

\n

The analysts sees Boyd — whose properties include the Cannery, Fremont, and Sam’s Town in Las Vegas — as offering the most attractive valuation among regional gaming companies and growth catalysts, such as strong demand in Las Vegas and the possibility to acquire assets that Caesar’s Entertainment Corp. (NASDAQ: CZR) could sell if it is acquired<\/a>.<\/span><\/p>\n<\/div>\n

Shojaian also forecasts a double-digit free cash flow yield for Boyd with the potential for what the analyst called aggressive return of capital. Boyd is already doing that, having recently boosted its quarterly dividend by 16.7 percent<\/a>.<\/p>\n

\u201cWe calculate BYD\u2019s 2019E free cash flow yield at 13.5% and 2020E free cash flow yield at 14.5%,\u201d said Shojaian. \u201cIt’s likely BYD will use some of its cash in the near term to pre-pay debt. Beginning in 2020 we expect more meaningful capital returns.\u201d<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Red Rock Resorts Inc. (NASDAQ: RRR), the operator of 20 casinos, could be a compelling bet for investors in the future. But at least one analyst sees some difficulties in estimating the impact of the company’s efforts to ramp up the Palms Las Vegas following an expensive renovation of the off-Strip property. Wolfe Research analyst […]<\/p>\n","protected":false},"author":46,"featured_media":107069,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[62,10],"tags":[],"acf":[],"yoast_head":"\nAnalyst Sees 'Interesting Story' With Red Rock, Likes Boyd's Cash Flow - Casino.org Analyst Sees 'Interesting Story' With Red Rock, Likes Boyd's Cash Flow<\/title>\n<meta name=\"description\" content=\"Red Rock Resorts Inc. (NASDAQ: RRR), the operator of 20 casinos, could be a compelling bet for investors in the future. 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