Deutsche Bank has issued a Buy rating for Red Rock Resorts, bullish on the operator’s development pipeline and management of the North Fork casino project in northern California. Deutsche Bank has a $62 price target for the stock that traded in the mid-$40s to close 2024.
In a note to investors, analyst Carlo Santarelli discussed Red Rock’s plans to embark on three projects in 2025: the Sunset Station renovation work for $53 million, a $150 million room remodel that will last from June through November at Green Valley Ranch, and the parking and gaming expansion at Durango for $116 million. The total spending will be $320 million and have $22 million in EBITDA impact. A portion of that can be recaptured at other assets in the portfolio, presumably Red Rock Hotel-Casino, which should benefit from the Durango disruption.
“While the 2025 pipeline is clear, the longer-term path remains robust, though somewhat ambiguous,” Santarelli wrote. “We don’t believe Red Rock Resort is likely to get the benefit from the pipeline until more clarity emerges, but we do believe some clarity on the next major development in late 2025, coupled with investors looking ahead to the benefits from the 2025 capital projects, could prove catalytic for shares.”
Red Rock is weighing development on 128 acres at Cactus Avenue and Las Vegas Boulevard South, which Santarelli said would be akin to Red Rock Resort. Second, the Durango Phase II would follow the ongoing parking and casino expansion project and third, a development on the 49-acre Inspirada site in west Henderson near the M Resort would be smaller in scale, about 60% of Durango, and cater to the highly affluent subdivision of Anthem, Santarelli said.
“While we view Cactus and Durango Phase II as a tossup with respect to what is next, we believe Cactus has moved ahead of Inspirada in terms of management’s thinking.”
Red Rock Resort’s same-store Las Vegas locals property EBITDA has been down on a year-over-year basis during each of the last six quarters, dating back to the second quarter of 2023. While Q4 2023 through Q3 2024 has been hampered by cannibalization, primarily at Red Rock Resort from Durango, Santarelli said it should be recognized that negative comparisons began prior to the Durango opening.
“Given the headwinds from the ongoing projects in 2025 and the implied pivot in the same-store cadence, we believe consensus forecasts for Red Rock Resorts are a touch high about 3%” Santarelli said. “We believe buyside expectations likely reflect results that are below consensus, and as such, a negative revision cycle could potentially serve as a positive catalyst for shares should it play out.”
Given the mid-2026 opening, Santarelli expects Red Rock to begin to garner credit from the opening of the $785 million North Fork project in Fresno, for which it will receive a management fee in 2025. The project is widely expected to have 2,500 slots and 40 to 50 table games. Phase I will not have a hotel. Red Rock has extended $60 million to the tribe over the years and this amount will likely increase. Including accrued interest, Red Rock is owed $120 million, which could be returned when construction financing is in place, Santarelli said.
“One of the reasons for the lengthy delay around North Fork is related to the inability to enter into a compact with the state. Now that this delay is in the rearview mirror, the absence of a negotiated compact serves as a bit of a benefit to the tribe and, subsequently, Red Rock Resorts as the tax implications are favorable for margins.
As it relates to the management contract, Red Rock will receive a 30% management fee on net revenue and a 4% development fee.
“We believe this translates to a fee that equates to 40% of property EBITDA, with the property enjoying very high property level EBITDA margins,” Santarelli said. “Given the demographics and similar tribal management agreement fees, we believe Red Rock will generate $40 million to $50 million in fees, per year upon stabilization. As such, we believe the management contract is worth $1 to 2 per share in present equity value for Red Rock.”
The $62 price target is based on applying a 10 times multiple to Deutsche Bank’s 2026 adjusted EBITDA estimate. Santarelli believes their multiple is fair given historical valuation and peer trading multiples. They then apply incremental value for Red Rock’s undeveloped raw land ($7) and the value of the North Fork management contract ($1).
“We then extract our 2026 net debt estimate of $2.8 billion. Our analysis yields a value per share of $62 which implies that Red Rock can trade at a post-tax, free-cash-flow per share yield of 7.3% (8.5% excluding the land and management contract value adjustments).”
