How important is a CEO to the success of a company as an investment?
Obviously, a CEO is more important than anyone else in the organization, but he—or she—can also be limited by outside events as a lot of investors discovered in the 2008-2009 financial meltdown.
Sometimes, timing is everything, as TJ Matthews and Patti Hart can attest after taking the helm of IGT at its peak with no more market share to reasonably gain and losing important product monopolies.
But the right CEO at the right time can make all the difference.
Take the case of Pinnacle Entertainment and Anthony Sanfilippo.
On the day Sanfilippo was announced as PNK’s CEO on March 15, 2010, the stock was $9.30. As of this writing, it is over $40. That’s more than a 400 percent return in five years.
More important than the return is the way it has been achieved, because Sanfilippo has performed in a way that suggests there’s more to come.
Sanfilippo has covered his bases, such as buying into Retama racetrack in San Antonio, both a defensive move if Texas legalizes casinos to compete with PNK’s Louisiana properties, and an offensive move – owning what might be the only casino in a major metro area – would be a gold mine.
He has taken chances, such as investing in the Ho Tram resort in Vietnam, an opportunity that PNK has written off.
He has executed on the major acquisition of Ameristar, which promises to contribute to profit growth for a long time to come.
And Sanfilippo has shown the ability to be opportunistic, first declaring that PNK would unlock the value of its real estate by creating a REIT, and then being flexible enough to negotiate a good deal when Gaming & Leisure Properties came along and offered to be the REIT vehicle for Pinnacle.
It is the GLPI deal that has driven the stock over $40, and PNK says it values the company at $47 a share.
Further, even though PNK doesn’t pay a dividend, its shareholders will soon be getting a fine dividend because, as part of the REIT deal, they will acquire 0.85 percent of a share in GLPI for every share of PNK they own.
Considering that GLPI is expected to pay a dividend yielding around 5.5 percent next year that makes for a very nice income stream for shareholders.
Further, PNK is now positioned to grow on its own, and to ride along with the growth that many investors see for GLPI.
It should be mentioned that the Ameristar purchase made PNK that much more of a candidate for a REIT conversion.
A few years ago, I wrote that Sanfilippo could be one of the best CEOs ever in the gaming industry.
His focus on team-building, positive attitude, commitment to making PNK the best company in the industry, and his early moves such as at Retama and in Vietnam were the convincers for me. It didn’t hurt that he had a track record as a regional leader for Harrah’s and as CEO of Multimedia Games.
At the time, we recommended PNK to clients who subscribe to our limited-in-number Fantini’s Investment Advisory service. We were glad to be proven right.
And, we expect, a guy who has found so many ways to move PNK beyond what many observers thought possible, will find ways to continue to move it, and consequently the stock, forward.