Sorry for the redundancy – 3rd note in a row – but even after a blowout Q1, the Street looks way too low for 2010. Here’s why.
Yes, this is a new note. On top of our 3/1/10 note “PNK: IS THE WORST OVER” and again on 4/22/10 with “PNK Q1 PREVIEW AND COST ANALYSIS,” we once again call for the Street to raise their estimates. The Street is still too low on PNK even after a blowout Q1. Consensus 2010 EBITDA estimate has climbed to $192 million but well below our $213 million estimate. Are we just smoking crack? I know I’m not, and I’m pretty sure Anna and Felix aren’t either. So how do we get there?
As you know, our models are very detailed, and we obviously model in a bottom up way, that is, by property. However, we’ve provided a top down view below to illustrate another way to get to $213 million.
PNK generated $173 million of EBITDA in 2009. The only negative adjustment in deriving 2010 numbers would be the move of $9 million in Argentina EBITDA into discontinued operations. The positive adjustments are the net impact – River City contribution less Lumiere Place cannibalization – of the St. Louis capacity addition, corporate savings of at least $4 million (we could be low), and the normalization of Q4 2009. As we’ve stated, Q4 was a “kitchen sink” quarter, in our opinion, and was understated by about $10 million in EBITDA.
The Street is either not incorporating the impact of the crazy Q4, not projecting the removal of Dan Lee expenses in corporate, and/or is assuming significant degradation at the property level. Given the sustainable cost cutting and rationalization generated in Q1, especially in the marketing area, we think PNK will offset any continued revenue declines from last year. When incorporating the unrealistic Q4 2009 margins, most properties should show EBITDA growth in 2010.
So there you have it. The Street is always happy to slap huge multiples on gaming names to justify their price targets, however they rarely want to be way ahead of consensus when it comes to numbers.