Rolling the Dice on Pinnacle Entertainment

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

MARK THOMAS
CHIEF INVESTMENT STRATEGIST
VALUE STOCK TIPS NEWSLETTER

COMPANY: Pinnacle Entertainment
TICKER: PNK (NYSE)
PRICE: $28.87
52-WEEK RANGE: $16.05-$32.09
MARKET CAPITALIZATION: $1.38 billion

Mark Thomas is the chief investment strategist of the Value Stock Tips newsletter. Mr. Thomas, who personally owns stock in Pinnacle, also writes a newsletter and operates the Web sitevaluestockpicks.com. Mr. Thomas spoke with Benjamin Weintraub of The New York Sun about how new ventures in the Southeast will boost Pinnacle’s value.

What does Pinnacle Entertainment do?

They’re a regional, non-Las Vegas based casino company. They’re headquartered in Las Vegas, but they don’t own any property there. They’ve been in a big battle because they tried taking over Aztar Corporation, but wound up getting outbid.

Why do you like the stock?

I’ve followed the casino sector since about 1993. The key to everything I do is the enterprise value to revenue ratio. When you look at a stock that way, you look at its total growth including its debt, almost as another company looking to buy it would. In the casino business, they trade at around two and half or three times the revenue. When these businesses get taken over they get bought out at around three times the revenue. Because Pinnacle doesn’t have Vegas or Atlantic City, exposure, when you look at it now its only 1.72 times the revenue.

I look at the total value with debt. What is the catalyst over a certain amount of time that will change its valuation? With this company here, the reason this company’s stock is up a lot and their enterprise value to revenue is so low is because they opened a new project in Lake Charles, Louisiana, which is bringing in $300 million a year. It’s a very profitable, as it’s the casino nearest the Houston, Dallas, and San Antonio market. That’s already kind of reflected in the stock, which has gone up from $15 to $27.

Do you think the stock is undervalued?

When I divide 1.7 by 2.5, the stock is 31% undervalued, which would give me a $36 price target, in the next 12 to 18 months.

How do you expect the company or industry to perform going forward?

The casino sector’s been very strong so that really hasn’t been a problem. They’re positioned pretty well in their market – they’re doing about as well as they can. This management is pretty young, and they’re pretty aggressive.

What’s the company’s revenue?

$932 million, assuming last quarter times four. The new property in Lake Charles got their revenue up a lot.

Is it a good time to buy?

After the pull back in the last week, it’s definitely a good time. They have two big projects opening in St. Louis within the next year. They’ve gone from not much in earnings to almost $1.60 annually in earnings and with their projects coming online, their revenues and earnings could probably go up 50-60% in the next year or two. I have a $36 target in the next 12-18 months.

What are the risks?

When you’re in the casino war, if you have a travel tourism related thing, usually terrorism or gas going up another dollar a gallon. A lot of people need to travel 100 or 200 miles to get to these places. The gas price rise has had no affect on them so far, but if gasoline spiked from three to four dollars, it would hurt them.

How long will you hold the stock?

I’ll give it a few months and if it doesn’t do what I expect it to do I’ll move on. But I expect to hold it the next year to two years. I would keep it the same as my price target frame, 12-18.


The New York Sun

© 2024 The New York Sun Company, LLC. All rights reserved.

Use of this site constitutes acceptance of our Terms of Use and Privacy Policy. The material on this site is protected by copyright law and may not be reproduced, distributed, transmitted, cached or otherwise used.

The New York Sun

Sign in or  Create a free account

By continuing you agree to our Privacy Policy and Terms of Use