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Best of Howard Stutz

Gaming Guru

Howard Stutz

Analysts say Pinnacle Entertainment poised for solid year

10 January 2011

LAS VEGAS, Nevada -- Pinnacle Entertainment collected its share of headlines in 2010.

Wall Street believes the Las Vegas-based regional casino operator will cultivate investor interest again in 2011.

Several analysts made Pinnacle their top stock pick this year. Another analyst downgraded his view of Pinnacle but thought there is value in the company.

Pinnacle faces potential competition in several markets over the next few years. Shoring up existing operations while building a $357 million casino in Baton Rouge, La., are the primary resolutions.

Macquarie Securities gaming analyst Chad Beynon said Pinnacle's stock outperformed that of other regional casino operators by 55 percent last year. He sees a repeat performance.

"We still expect the stock to be a top performer in 2011 on the back of operational improvements that are just taking hold and will be implemented by the first quarter," Beynon said.

In 2010, Pinnacle opened the $380 million River City in suburban St. Louis, hired former Harrah's Entertainment executive Anthony Sanfilippo as CEO, and scaled back development plans.

St. Louis, with River City and the downtown Lumiere Place, is Pinnacle's focus. Beynon said the company could capture more than one-third of the market.

Pinnacle canceled a second casino for Lake Charles, La., and closed a riverboat in downtown St. Louis, returning the casino license to Missouri regulators.

The license was awarded to Isle of Capri Casinos, which plans to build a property in Cape Girardeau, 115 miles southeast of St. Louis.

The company's former Louisiana license will be awarded to either Penn National Gaming or former Pinnacle CEO Dan Lee by February. Both are troublesome.

Penn would move the license to New Orleans and build a casino near Pinnacle's Boomtown New Orleans. Lee would keep the license in Lake Charles and construct the $400 million Mojito Pointe next to the company's flagship L'Auberge du Lac.

Pinnacle is also facing competition from casinos in Ohio, which could take customers from Belterra in northern Indiana.

CRT Capital Group gaming analyst Steve Ruggiero cautioned investors that Pinnacle could be seeing a serious attack on cash flow over the next few years.

"Continued earnings growth (is) the ongoing catalyst to take Pinnacle's common stock price higher in the near term," Ruggiero said. "As visibility to the late 2011 Baton Rouge opening increases, we expect that the market will to look to 2012 earnings as a metric for valuation."