PNK should beat the consensus Q1 estimate and 2010 probably needs to go higher. The stock has had a great run but management seems to be making all the right moves.
Q1 should look much better than Q4’s kitchen sink. We have our own theories on why Q4 was so ugly but that’s yesterday’s news. Top line in Q1 will not look strong but margins should be much improved. This is not exactly ground breaking commentary, however. The stock is up 66% since we highlighted the potentially strong quarter and positive catalysts in our 3/1/10 note, “PNK: Is the Worst Over?” However, 2010 consensus EBITDA of $179 million looks low, so there still might be some gas in the tank.
For Q1, we are projecting $45.8 million of EBITDA, about $5 million ahead of the Street. We think the main risk to our number will be if the company wants to be conservative with a new CEO at the helm. For the year, we are at $188 million versus the Street at $179 million. On the conference call, look for some important commentary on the cost side. Here is our analysis:
How much can PNK really save?
- In 2009, PNK spent $12.1MM maintaining the AC land
- “In late 2008, we decided to suspend substantially all development activities in Atlantic City indefinitely. The continuing pre-opening and development costs include property taxes and other costs associated with ownership of the land.”
- Getting rid of the airplane and consolidating the 3 offices will save them another $2.5MM/year
- They renegotiated their insurance policy – saving another $1MM
- Marketing expenses may be the largest saving for PNK, particularly in Louisiana – another benefit from jettisoning Dan Lee
If we are right on the cost savings (without factoring in marketing cost reductions), PNK would have up to $15 million in potential cost savings this year plus marketing reductions. We are not sure if the AC costs will be shown in discontinued operations until they sell the property. If you add $22 millilon in net River City contribution (net of Lumiere Place cannibalization) plus the cost savings to the $173 million in EBITDA from last year, it's easy to see why we think the Street's 2010 estimate of $179 million looks conservative to us, even with degredation at the other properties.
