Red Rock Resorts (RRR): Navigating Near-Term Headwinds for a 2026 EBITDA Rebound

In the volatile gaming sector, Red Rock Resorts (RRR) is proving that strategic patience can turn short-term disruptions into long-term wins. Despite near-term headwinds like construction disruptions, inflationary pressures, and temporary revenue cannibalization, the company's dominant locals market position, robust free cash flow, and disciplined capital allocation are setting the stage for a 2026 EBITDA rebound. Supported by CBRE's upgraded price target and the success of its Durango expansion, RRR's current volatility presents a compelling entry point for investors willing to look beyond the noise.

The Strategic Development Pipeline: Building for Growth

RRR's growth engine is fueled by two transformative projects: the Durango Casino & Resort expansion and the North Fork tribal-managed casino in California.

The Durango expansion, completed in late 2024, added 25,000 sq ft of gaming space, 230 new slot machines, and a 2,000-space parking garage. This $120 million investment has already driven record Las Vegas net revenue of $495 million in Q1 2025, a 1.9% YoY increase, and an adjusted EBITDA margin of 47.7%. Despite initial cannibalization fears—where Durango's success temporarily reduced revenue at the adjacent Red Rock property—management reported that this impact had fully subsided by mid-2024. The project's net return of 15–16% (after cannibalization) underscores its value, while its proximity to Las Vegas' growing Summerlin neighborhood (projected to add 34,000 households) ensures sustained demand.

Meanwhile, the $750 million North Fork project in California—set to open mid-2026—is a game-changer. Backed by tribal financing that reduced RRR's capital burden, this 100,000-sq-ft casino will feature 2,400 slots and 42 table games. Analysts estimate it could contribute $100 million annually to EBITDA, diversifying RRR's revenue beyond Nevada's locals market.

Operational Resilience: Dominating the Locals Market

RRR's focus on the Las Vegas locals market—which accounts for ~70% of revenue—is a strategic moat. Unlike Strip peers, which rely on discretionary tourist spending, locals casinos cater to nearby residents with convenience, affordability, and proximity. This model proved recession-resistant during the 2008 crisis and is holding steady today.

Key metrics:
- Q2 2025 Earnings: Revenue of $486.4 million and EPS of $0.59 beat estimates, driven by 5.2% YoY gaming revenue growth at locals-focused properties.
- Adjusted EBITDA margins: Expanded to 47.7% in Q1 2025, up 34 bps YoY, thanks to cost controls like a 35% drop in utility costs and disciplined payroll management.
- Customer growth: Durango added 95,000 new customers since its 2023 launch, with visitation and net theoretical win up 91% and 92%, respectively.

The locals market's diversified economy and strong supply-demand dynamics also buffer against macro risks. Gaming revenue here grew 3.2% YoY in April 2024, outperforming broader Las Vegas Strip trends.

Capital Allocation: Free Cash Flow as a Safety Net

RRR's financial discipline is evident in its balance sheet and shareholder returns:
- Net debt-to-EBITDA: Improved to 4.1x in Q1 2025, a manageable level given its free cash flow (FCF) generation.
- FCF conversion: ~43%, with ~$150.6 million in cash and $309 million remaining buyback capacity.
- Dividend strength: A $1.25/share payout (including a $1 special dividend) reflects a 50% EBITDA payout ratio, leaving ample room for reinvestment.

These metrics highlight RRR's ability to navigate disruptions. For example, while hotel and F&B revenue dipped 5–4% YoY due to inflation-driven cost pressures, gaming's resilience and margin expansion offset these losses.

Mitigating Renovation Risks

Temporary disruptions from projects like Durango and Green Valley Ranch renovations (targeting Henderson's growth) are expected, but management has planned carefully:
- Cannibalization: Fully reversed at Durango six months ahead of expectations, thanks to demographic tailwinds.
- Construction costs: Rising tariffs on imported materials added 4–6% to project expenses, but domestic sourcing and operational efficiencies are mitigating this.
- Timing: Most capital-heavy projects (e.g., North Fork) are externally financed, limiting RRR's debt burden.

Investment Thesis: Buying the Dip Ahead of 2026

The CBRE price target upgrade to $57 from $55 reflects confidence in RRR's ability to execute its pipeline. With a 2026 EBITDA rebound in sight—driven by North Fork's launch and Durango's full ramp-up—the current stock price (~$42.67 post-Q2 earnings) offers a margin of safety.

Catalysts to watch:
1. Q2 2025 Earnings Call (July 29): Expectations for an EPS beat and updated North Fork timelines.
2. 2026 North Fork Opening: A key milestone for top-line diversification.
3. Locals Market Resilience: Ongoing gaming revenue growth in Summerlin and Henderson.

Risks & Considerations

• Economic sensitivity: A recession could pressure discretionary spending, though locals' affordability mitigates this.
• Inflation: Ongoing cost pressures in food, beverage, and insurance.
• Project delays: Supply chain issues or tribal approvals could delay North Fork.

Conclusion: A Buy for the Long Run

RRR is a contrarian play in a sector facing near-term headwinds. Its locals dominance, fortress-like balance sheet, and high-margin growth projects position it for a 2026 EBITDA rebound. With CBRE's bullish stance and a valuation at just 17.99x trailing P/E (vs. 31.21x forward P/E), investors who buy here could capitalize on the gap between current volatility and future growth.

Actionable Takeaway: Accumulate RRR on dips below $45, with a price target of $57+ by 2026. Hold for the long-term, as operational execution and strategic discipline are set to pay off.