Why Pinnacle Entertainment, Inc. Stock Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Pinnacle Entertainment  (NYSE: PNK  )  fell 6.3% Thursday on a disappointing earnings report.

So what: The casino operator said sales jumped 108% in the second quarter, to $555.2 million, primarily due to its earlier addition of Ameristar Casinos properties. That figure just missed the consensus estimate of $557 million, and without the acquisition of Ameristar and the addition of the Belterra Park casino, sales would have actually fallen slightly. On the bottom line, adjusted earnings per share improved from $0.13 to $0.37, but that was also short of the consensus of $0.47.  

Now what: In the earnings press release, CEO Anthony Sanfilippo said the "second quarter financial results do not reflect our best effort," adding that Pinnacle's portfolio of properties has much more potential. Still, this was a transitional quarter for the company as it integrated the Ameristar properties and rolled out the mychoice player loyalty program, among improvements in information technology and other infrastructure. In the afternoon, Orange Capital, a hedge fund and investor in Pinnacle, made public its proposal that the company convert to a real estate investment trust. Shares didn't move in response to that news, but the proposal presents an additional option for a company with nearly flat organic revenue growth.

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