Red Rock Resorts is capturing investor attention with ambitious development plans and strategic management of the North Fork casino project in Northern California. Deutsche Bank has expressed optimism, maintaining a “Buy” rating with a price target of $62, significantly above the mid-$40 range the stock is trading in as of late 2024.
Major Development Projects Slated for 2025
Deutsche Bank analyst Carlo Santarelli highlighted three significant projects that Red Rock Resorts has planned for 2025, signalling a $320 million investment in total:
- Sunset Station Renovation: A $53 million revamp will modernize the property, aligning it with customer preferences.
- Green Valley Ranch Remodel: A $150 million upgrade will focus on room enhancements, scheduled to run from June to November.
- Durango Expansion: $116 million will be spent on parking and gaming expansions at the new Durango property.
Together, these projects are expected to generate $22 million in EBITDA, though some disruption is anticipated, particularly at Red Rock Hotel-Casino. However, management expects to mitigate these impacts by recapturing revenues through the broader portfolio.
Future Projects: Cactus Avenue and Inspirada in Focus
Looking beyond 2025, Red Rock Resorts is exploring several large-scale developments that could redefine its presence in the Las Vegas market:
- Cactus Avenue and Las Vegas Boulevard South: Positioned to rival the flagship Red Rock Resort, this project appears to be the company’s primary focus.
- Durango Phase II: Following the current expansion, additional growth is planned to cater to increased demand.
- Inspirada Site: Located in West Henderson, this smaller-scale project (60% the size of Durango) is designed to serve the affluent Anthem community.
Santarelli noted that management seems to be prioritizing the Cactus Avenue project over Inspirada, suggesting it could be the next major step forward.
EBITDA Challenges and Opportunities
Despite the promising outlook, Red Rock has faced six consecutive quarters of year-over-year EBITDA declines in its Las Vegas locals’ portfolio, dating back to Q2 2023. Much of this downturn has been attributed to cannibalization from the new Durango property. However, Santarelli points out that this trend predates Durango’s opening, indicating deeper challenges.
Investor sentiment appears to be more conservative than consensus forecasts, which could position the company to outperform expectations if current projects deliver as anticipated.
North Fork Casino: A Game-Changer for Revenue Streams
Red Rock’s involvement with the North Fork casino project in Fresno, California, is another key driver of future growth. The casino, expected to open in mid-2026, will feature:
- 2,500 slot machines
- 40-50 table games
- No hotel in its first phase
Red Rock has extended $60 million in funding to the tribal partner over the years, accruing $120 million, including interest. This amount is expected to be repaid once construction financing is secured.
Through its management contract, Red Rock will receive:
- 30% management fee on net revenue
- 4% development fee
This is estimated to translate to $40-$50 million in annual fees upon stabilization, representing significant value. Additionally, favorable tax arrangements for the tribal entity boost margins, further enhancing the partnership’s profitability.
Valuation and Analyst Insights
Deutsche Bank’s $62 price target is based on a 10x multiple of the firm’s 2026 adjusted EBITDA estimate. This valuation includes:
- $7 per share for undeveloped land
- $1 per share for the North Fork management contract
Subtracting the estimated net debt of $2.8 billion in 2026, the analysis points to a post-tax free cash flow yield of 7.3%. Excluding adjustments for land and the management contract, the yield increases to 8.5%, making Red Rock an attractive proposition for long-term investors.
