In a pricey show of support after a disappointing second quarter for Red Rock Resorts, majority shareholders Frank Fertitta III and Lorenzo Fertitta have upped their investment in the company by more than $51 million.
The brothers have acquired an additional 2.25 million shares in two purchases this month at average prices of $18.71 and $18.57 per share, according to filings with the U.S. Securities and Exchange Commission.
They now hold more than 47.5 million shares combined in the parent company of Las Vegas locals giant Station Casinos, good for more than 41 percent of the equity.
Frank Fertitta is Red Rock’s chairman and CEO. Lorenzo Fertitta is vice chairman.
The transactions took place in the aftermath of a year-on-year decline in cash flow for the April-June period, principally the result of high start-up costs and higher-than-anticipated operating expenses associated with the $690 million renovation of Station’s off-Strip Palms Resort and Casino.
“Like any new project, expenses open much higher than you would normally expect,” CFO Stephen Cootey said on the August 6 earnings call. “You try to increase customer awareness; you try to make sure that the customer service is actually top notch.”
Deutsche Bank gaming analyst Carlo Santarelli said the stock buys represent a vote of confidence in the Palms Casino Resort project, which has consumed much of the investment community’s interest in Red Rock since it acquired the property in 2016 for $312.5 million.
“We view the activity as a distinct positive, further supporting the view that management believes the locals market remains, and will remain, healthy and that the Palms redevelopment will find its footing over time,” Santarelli said.
“We could see a few more quarters of elevated costs until flow-through approaches management’s normalized long-term guidance range,” said SunTrust Bank analyst Barry Jonas, who echoed Santarelli’s positive outlook, saying, “(The) core Las Vegas trends appear healthy with Red Rock Resorts continuing to outperform the locals market, which leads the U.S. in growth.”
