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RBC Capital upgraded Pinnacle to outperform and increased

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investora2z   Wednesday, 07/10/13 08:24:03 AM
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RBC Capital upgraded Pinnacle to outperform and increased the price target significantly to $24. Nomura recently downgraded it to neutral and lowered the PT from $23 to $21. Credit Agricole downgraded it to a sell while Barclays Capital have an overweight rating with a PT of $22 (up from $16). Consensus rating for the stock is hold and price target is $20. Thus, the analyst opinion is mixed and does not provide any clear guidance. The stock has done well for the investors and has more than doubled over the last one year. The acquisition of Ameristar Casinos (ASCA) is likely to be positive for the top line of the company as it would double the revenues and increase its market share significantly. Ameristar is a profit making company, but the impact of the interest costs due to increased leverage will need to be seen. Pinnacle has been incurring losses since the last few years. There was some reduction in losses, but the losses have again increased in the last two quarters. The existing leverage is high and is likely to increase substantially due to the $2.8 billion acquisition. Most big companies in the industry are highly leveraged and have been incurring losses. In addition, Caesars (CZR), Penn National Gaming (PENN) and MGM Resorts (MGM) are also facing a $4.5 billion dollar patent infringement lawsuit filed by MGT Capital Investments (MGT) for which Markman hearing has been fixed recently. Improvement in the economy will increase discretionary spending, and may lead to growth in revenues, but margins remain the main worry. Pinnacle has to show visible improvement on that soon so that it remains in favor of the analysts. This is specially important if one considers the excellent rise in the price of the stock over the last one year. Slippages will not be welcome and may put pressure on the stock.

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