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Howard Stutz

Casino Stocks: Pinnacle plans offering of 10 million shares

8 January 2007

LAS VEGAS, Nevada -- Las Vegas-based Pinnacle Entertainment said Friday it wants to help finance several of its casino development projects through a stock offering of 10 million shares. The company registered with U.S. Securities and Exchange Commission to sell the shares.

Pinnacle expects to have 58.2 million common shares outstanding after the offer is completed.

The company's stock price fell on the news that additional shares would soon be on the market, but one gaming analyst said that action should translate into opportunity for stock speculators.

"We advise investors to use weakness today as an opportunity to enter into a position on a quality gaming company with one of the higher growth profiles in the industry," Morgan Joseph gaming analyst Adam Steinberg said in a note Friday.

Shares of Pinnacle fell $3.35, or 9.89 percent, in trading on the New York Stock Exchange to close at $30.51. More than 2.5 million shares were traded, five times the average daily volume.

In a statement, the company said it expects to use the proceeds from the stock offering to fund one or more of its capital improvement projects.

The company is building two casinos in St. Louis, expanding its casinos in New Orleans and Belterra, Ind., and has plans to build a second resort in Lake Charles, La., as well develop a resort in Atlantic City on the site of now-closed Sands.

"Proceeds from the offering will be used for general corporate purposes and to fund the company's expansive pipeline of new projects," Steinberg said. "We also believe the company is interested in developing a war chest for the flexibility to pursue additional acquisition opportunities as they become available."

In the company's filing with the SEC, Pinnacle provided a preliminary update on financial results during the recently completed fourth quarter. The guidance mentioned weakness at the company's Boomtown New Orleans, Boomtown Reno, Boomtown Bossier City, and Belterra casinos. However, the declines were offset partially by increased revenue at L'Auberge du Lac in Lake Charles.

"The guidance sounds worse than it really is because New Orleans was such an anomaly last year," said Eric Green, director of research at Penn Capital Management in Cherry Hill, N.J., Pinnacle's fourth-largest shareholder. "There was no competition in New Orleans."

Still, Steinberg said Pinnacle's development plans make the company an attractive investment opportunity.

"We view this development timetable as transformational for Pinnacle," Steinberg said. "As the new projects come on line, returns should improve and Pinnacle can begin to reduce its leverage."

Bloomberg News contributed to this report.