What are the competitors up to?
Caesars Entertainment Corp (NASDAQ:CZR), one of the casino giants, has also entered into an agreement to sell its property in Macau to an Asian developer for $438 million. The proceeds from the divestiture will pay down the company’s debt.
Another reason for this divestiture is the poor performance of this segment. In 2013 the revenues from the segment have declined by 12.5%. As of June 30th, the end of the first half of the fiscal year, the company’s net loss from Macau was $18 million, whereas on June 30, 2012 the net loss incurred by this segment was $96.4 million. Therefore, the sale is expected to improve the profitability of the company.
As the first half ended, the company’s net revenues declined by 2.5% as compared to the same period in the prior year. The losses from continued and discontinued operations reduced by 20% and 43.4% respectively, whereas the operating margin improved by 2.2%.
Another competitor of Pinnacle, Boyd Gaming Corporation (NYSE:BYD), has made two divestitures in 2013. In its first transaction, the company sold its Las Vegas Echelon resort for $350 million cash. After paying a portion of these proceeds to fulfill the company’s obligations to LVE Energy Partners, Boyd Gaming Corporation (NYSE:BYD) got $157 million from the deal.
During the second quarter, the company made another transaction in which it sold Dania Jai-Alai, a resort located in Florida. After the sale, it realized a pre-tax gain of $18.9 million which was intended to be used for the repayment of debts. These deals will strengthen the company’s balance sheet and improve its long-term financial position by reducing debt. At the end of the 2012 fiscal year, the company’s outstanding debt was $4.8 billion. Its current debt-to-equity ratio is 13.8.
In its second quarter of 2013, the company reported net revenues of $738.7million, which were 20.3% higher than the same quarter in 2012. The adjusted EBITDA grew 40.7% to $160.2 million, compared to $113.8 million in the same quarter of the previous year. The net income for the quarter was $4.3 million, or $0.05 per share. Net income for the six months ending on June 30, 2013 was down by 36.7%, compared to the same period in the prior year.
Final words
Although the divestitures are bringing more losses than benefits for Pinnacle, the company’s financial performance is still very stable. The Ameristar acquisition is going to bring significant revenues and profitability to the company in coming years. Overall, the company’s stock provides a very attractive option to investors and I would suggest buying the stock.
Caesars Entertainment Corp (NASDAQ:CZR)’s future outlook is positive after the divestiture of Macau, as it improves the company’s net revenues and its debt profile. These improvements will lead to profitability and less volatile earnings for the company. Moreover, the company’s net loss has decreased and its operating margin has improved compared to the previous year.
Despite all these improvements, the company is still entrenched in the huge losses that it incurred in prior years. From 2008 to 2012, the company had positive earnings only in 2009. Based on this fact, I would not recommend buying the stock.
Boyd Gaming Corporation (NYSE:BYD)’s revenues and net income have improved over the period, but its net income is declining compared to the prior year. At the end of 2012, its net loss increased by almost 100% compared to 2011. The company’s debt profile is the worst among its industry peers. Although its spinoffs will improve its financial position to some extent, they will not be enough to bring the company back to the profitable position it held three years ago. As a result, I would not recommend buying this company’s stock.
The article Will This Gamble Help Pinnacle? originally appeared on Fool.com and is written by Usman Iftikhar.
usman iftikhar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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