Ron Baron Stays Bullish on Red Rock Resorts
Billionaire investor Ron Baron is doubling down on Red Rock Resorts (NASDAQ: RRR), viewing the casino operator's recent stock decline as a compelling buying opportunity. In a recent investor letter for the Baron First Principles ETF (NYSE: RONB), Baron praised the company's strong balance sheet and long-term growth potential, even as construction disruptions at several Las Vegas properties have pushed the stock down 10% year-to-date.
"The company's balance sheet remains strong with increased liquidity for further capital investment and shareholder returns," Baron wrote. "We believe the stock remains attractive compared to what we believe the business can become in time." Red Rock stock accounts for 2.61% of the RONB portfolio, making it the ETF's tenth-largest holding. The fund, which debuted last December, has $489.62 million in assets under management.
Construction Headwinds Seen as Temporary
The dip in Red Rock's stock price stems largely from construction disruption at the Durango Casino & Resort in Southwest Las Vegas, Green Valley Ranch, and Sunset Station. These renovation and expansion projects have modestly dinged financial results in the near term. However, both Baron and sell-side analysts view the investments as near-term pain for long-term gain.
In the second quarter, "construction disruption dissipated and investors looked ahead to the benefits of the company's recent investments in its resorts," Baron noted. "This should result in increased earnings and cash flow and allow the company to continue to invest in its properties while returning capital to shareholders." Red Rock is the only gaming stock in the RONB portfolio, though another Baron ETF holds shares of Wynn Resorts (NASDAQ: WYNN).
Sell-Side Analysts Concur
Baron's optimism is echoed by Wall Street. Earlier this week, Texas Capital analyst David Bain initiated coverage of Red Rock with a "buy" rating and a $72 price target, implying nearly 33% upside from current levels. Bain highlighted the company's focus on the booming Las Vegas locals market, where Red Rock is gaining wallet share due to its willingness to invest in properties and achieve strong returns on investment.
The analyst also pointed to Red Rock's substantial real estate holdings as a potential catalyst. "Red Rock historically generates 20%+ IRR on greenfield projects combined with its ~442-acre Nevada land bank, we believe offering a clear, unmatched, long-term growth pipeline," Bain wrote. The Las Vegas area's population boom continues to underpin demand for locals-focused gaming and entertainment options, a niche where Red Rock has historically excelled.
Broader Implications for Investors
The renewed focus on Red Rock comes amid broader market interest in Baron's investment activities. Baron Capital, founded by Ron Baron, has long been a prominent backer of Elon Musk's ventures, including SpaceX. According to recent disclosures, BAMCO, a subsidiary of Baron Capital, is among the top holders of SpaceX shares, which recently IPO'd at a $2 trillion valuation. This association underscores Baron's willingness to bet on visionary companies, though Red Rock represents a more traditional value play.
Meanwhile, the Baron First Principles ETF has seen a significant drop in short interest, suggesting fading bearish sentiment. As of August 31, short interest totaled 41,030 shares, down 65.5% from mid-August. The ETF traded up 1.4% on Friday to $23.64, though it remains below its 52-week high of $26.73.
What This Means for Red Rock
For Red Rock Resorts, the dual endorsement from a high-profile investor like Baron and sell-side analysts could help reverse the stock's recent slide. The company's investments in its properties are expected to drive earnings growth once construction concludes. With a strong balance sheet and a focus on shareholder returns, Red Rock appears well-positioned to capitalize on the Las Vegas locals market's expansion.
Investors will be watching upcoming quarterly results for signs that construction disruptions are indeed easing and that the company's capital investments are bearing fruit. If Baron and Bain are correct, the current pullback may prove to be a lucrative entry point for long-term investors.
A Test of Patience
In the near term, Red Rock's stock may remain under pressure as construction projects wrap up and financial results normalize. However, the consensus among bullish investors is that the company's strategic investments will yield substantial returns over the next several years. Baron's continued confidence, backed by his fund's significant stake, signals that he believes Red Rock's best days lie ahead.
As the Las Vegas Valley continues to attract new residents and tourists, Red Rock's expanded and upgraded properties should be well-positioned to capture growing demand. For now, shareholders will need to exercise patience, trusting that the current disruptions are merely a temporary setback on a longer path to growth.
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