Wells Fargo Upgrades Pinnacle Entertainment To Outperform

Wells Fargo has published a research report on Pinnacle Entertainment

and has upgraded the company to Outperform from Market Perform. In the report, Wells Fargo writes "We are upgrading shares of PNK to Outperform from Market Perform and we are modestly raising our Q4 2010E and 2012E EBITDA. Our Q4 2010 EBITDA goes to $51.1MM from $50.3MM and our 2012 EBITDA goes to $282.8MM from $279.0MM. Our 2011E EBITDA is unchanged. We are also raising our year-end 2011 base case valuation to $18 from $15. Our base case valuation assumes PNK shares can trade at 7.6x our new 2012E EBITDA of $282.8MM. We then extract year-end 2012 net debt and make a value adjustment for incremental (2013) stabilized EBITDA from Baton Rouge to generate our year-end 2011 equity value. FY2011E goes to $0.20 from $0.21 and range is now $16-20 from $14-17. We believe current levels represent a favorable entry point for; 1) what we believe will be some near term catalysts (LA GGR results and PNK Q4 earnings), 2) further evidence of the evolving margin story, 3) a regional gaming recovery, 4) an underappreciated growth driver in Baton Rouge, and 5) an unheralded opportunity in Ohio. Additionally, we see current valuation as fully reflecting potential overhangs in Louisiana stemming from the awarding of the 15th license in that market and the potential for gaming legalization chatter in Texas in 2011. We address each of these issues in detail in the body of this note." Pinnacle Entertainment closed yesterday at $14.10.