• Weathering the pandemic in sin city

• Red Rock Resorts runs resorts and casinos for locals

• An expanding addressable market

• A dividend and earnings trajectory

• RRR could be the best bet in Las Vegas gaming stocks

I have lived in Las Vegas, Nevada, for nearly a decade. After spending most of my life in the heart of New York City, Las Vegas is one of the only cities in the US that offers the same level of entertainment, fine dining, and it is another city that never sleeps.

As I get older, Vegas also provides a suburban lifestyle in communities that are a short drive to the famous strip. The global pandemic has changed life for everyone on our planet. Social distancing and other guidelines have caused us to take more precautions. The Las Vegas economy has suffered more than many other cities because of its dependence on tourism and the convention business.

Last week, Las Vegas Sands (LVS), the company founded and run by the late Sheldon Adelson, announced the sale of its premier properties, the Venetian and Palazzo, to Apollo Global Management for $6.25 billion. Apollo will buy the Venetian’s convention center as part of the deal.

As Yogi Berra once said, “the future ain’t what it used to be” for Las Vegas. However, one area of the resort and casino business continues to thrive. As the city attracts more residents, the local’s casinos are ringing the register. Red Rock Resorts (RRR) operates Stations casino properties. The RRR locations that remain open are booming as the addressable market continues to grow. RRR is a growth stock in the gaming industry.

Weathering the pandemic in sin city

The resort and casino industry suffered mightily because of the global pandemic. Social distancing, working from home, and an abrupt halt to work and vacation travel made the Las Vegas strip a ghost town for months. Even when it reopened for business, occupancy restrictions and the absence of convention business make survival more than a challenge.

Nevada has had one of the highest unemployment rates in the United States as the state depends on revenues from the casinos and resorts. While conditions have been slowly improving on Las Vegas Boulevard, one sector of the casino business had a significant jumpstart. Locals casinos have been attracting residents over the past months, with the slot machines humming and business returning to normal.

Red Rock Resorts runs resorts and casinos for locals

RRR owns and operates Station Casinos, including its top properties, the Red Rock Casino Resort Spa and Green Valley Ranch Resort and Spa Casino. For many years, RRR’s slogan has been “We love locals,” catering to the growing Las Vegas local market. The company also proved that it loves its’ employees as they continued to pay many even during periods where the state forced them to close all of their properties.

Frank and Lorenzo Fertitta run RRR. Frank is CEO and Chairman of the Board of the public company, and Lorenzo is a board member and Vice-Chairman.

The brothers are two of the most experienced and talented operators in the Las Vegas gaming market.  They turned a $2 million investment in UFC in 2001 into over $4 billion in 2016.

An expanding addressable market

Nevada’s beneficial tax structure and its location bordering on California have caused the state’s population to grow by leaps and bounds. At the turn of this century, the state’s population was 1.88 million. In 2021 it stands at over 3.2 million, with most of the growth coming in Clark County, the home of Las Vegas. The number of locals in Las Vegas grew from 1.394 million in 2000 to nearly 2.35 million in 2021.

Local casinos like RRR have been far more successful in attracting residents than the leading strip casinos have been with out-of-town visitors, conventioneers, and others seeking the Las Vegas experience during the pandemic.

No state income tax and more affordable living than Southern California continue to increase RRR’s and other local establishment’s addressable markets. After reopening, the local’s casinos have built loyalty with their customers and employees.

A dividend and earnings trajectory

At around $34.50 per share on Thursday, March 11, the $0.40 per share dividend translates to a 1.2% yield. Meanwhile, the company has gotten back on track after being closed during Q2 2020.

Source: Yahoo Finance

The chart shows revenues and earnings returned and were positive in Q3 and Q4 2020.

Source: Yahoo Finance

RRR beat consensus EPS forecasts in three of the past four quarters. In Q4 2020, the company reported 39 cents per share, beating the estimate by nine cents. While revenue was down on a year-on-year basis in Q4, it still came in above the consensus forecast. RRR will report Q1 2021 in mid-May.

RRR could be the best bet in Las Vegas gaming stocks

During the height of the pandemic in March, RRR shares sank to a low of $2.76.

Source: Barchart

The chart shows that the stock has been over a ten-bagger since the March 2020 low. The all-time high was at $36.99 in July 2018. A survey of eight analysts on Yahoo Finance has an average price target of $33.38 for RRR shares, with forecasts ranging from $30 to $39 per share. At the $34.50 level, the stock is in the middle of the projected range.

RRR loves Las Vegas locals, and the locals love RRR’s properties which cater to them. As the addressable market expands. the sky’s the limit for the company that operates outside the Las Vegas strip. As the big strip casinos and convention hubs struggle to get back on their financial feet over the coming months, RRR has a huge head start as the company is profitable, well-managed, and has a growing customer base. Moreover, the Fertitta brothers are smart operators with lots of cash. I would not be surprised to see them scoop up some bargains created by the global pandemic over the coming months. RRR is a growth stock in 2021.

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