PNK kitchen -sinked the Q4 (can you say stock options?) and while Louisiana is still under a lot of pressure, there are indications that margins will improve. A CEO announcement could be a catalyst.
PNK is starting to look interesting again. Investor sentiment surrounding the regional gamers is finally very negative. After giving PNK credit for a full year of Sugarcane Bay, the EV/EBITDA multiple on 2011 is a reasonable 6x. Could it get cheaper? Sure. The regional gaming performance has been significantly lagging other consumer discretionary sectors. Louisiana, where PNK has significant exposure, has been under pressure due to the energy economy there and extremely difficult comparisons. However, there a few company specific catalysts.
Q4 was awful, but it may have been an anomaly. We suspect there was a little kitchen-sinking going on. It may or may not be a coincidence that the new management team’s options were priced after the quarter. Margins should look better going forward. PNK will save $2 million annually from jettisoning the corporate jet and Las Vegas consolidation will save $500k. Insurance expenses will be brought down. Importantly, marketing expenses are going lower, particularly in Louisiana.
In addition to better margins and potentially better than expected near-term earnings, a new CEO announcement could be a positive catalyst. While nothing is imminent, the sale of the Atlantic City land parcel would be huge given the large carrying cost and deleveraging aspects of a sale. A sale of the Argentina assets would likewise be a positive.
Many analysts are at PNK’s new River City in South St. Louis County today for an analyst tour and meetings. We believe the meetings will be positive on the margin (relative to low expectations following the Q4 earnings release) due in part to the items discussed above.
