Street praises Pinnacle’s moves
Wall Street is giving Pinnacle Entertainment high marks for the company’s decision Thursday to halt the Sugarcane Bay casino expansion in Lake Charles, La.
The Las Vegas-based casino operator will give the gaming license for the property back to Louisiana casino regulators. The company still operates three casinos in the state is moving forward with plans for a hotel-casino in Baton Rouge.
Janney Montgomery Scott gaming analyst Brian McGill said it made little sense for Pinnacle to add a second casino to the Lake Charles market, where it operates L’auberge du Lac, the company’s largest property.
“We view this decision favorably on both a strategic and a capital spending basis,” McGill said. “Lake Charles is the closest full-scale casino market to Houston and draws much of its customer base from Texas. We do not believe it made sense to add further exposure to that market.”
McGill said there was skepticism within the investor community about the project’s merits on a return on capital basis.
Macquarie Securities gaming analyst Joel Simkins thought investors would respond positively toward the news. The only concern is if a competitor snaps up the license and builds a competing property. Pinnacle is facing the same issue in St. Louis where the company will walk away from the President Casino this summer.
“Developers would still have to secure the license, a development site, and financing; which could take many years,” Simkins said. “We believe finding reasonable financing would be difficult in mature markets; particularly Louisiana, which has potential downside exposure should Texas ever legalize commercial gaming.”
In making the announcement, new Pinnacle Chief Executive Officer Anthony Sanfilippo reaffirmed the company’s commitment to the Baton Rouge project.
“This is Sanfilippo’s first major, at least public, decision and one that, in our opinion, shows strong and rational capital allocation decision-making,” JP Morgan gaming analyst Joe Greff said.
Share of Pinnacle were up almost 5 percent at the outset of trading this morning on the New York Stock Exchange.
