International Game Technology (IGT) having closed the sale of its gaming business, Jefferies Equity Research analyst David Katz called it “a modest positive” for company stock. IGT shares were trading at $15.81 at the time of Katz’s report, which rated the company a Buy with a price target of $18 per share.
“While investor expectations may have been across a wide range, this is still a positive step,” said Katz of the sale. IGT will reorient itself around its lottery business, which Katz thinks will chart the company’s growth and value trajectories from now on.
IGT will utilize the sale proceeds in three ways. First, it will pay down $2 billion in debt. Secondly, it will pay a special dividend to stockholders of $3 per share. Third, it will buy back $500 million of its stock.
Also known now as Brightstar Lottery, IGT realized $4 billion from the sale of its gaming and digital businesses to Apollo Management. It will plow $500 million in sale proceeds into lease payments for its Italy Lotto contract, while reserving $400 million for “general corporate purposes,” according to Katz.
The Jefferies analyst said investors had many different expectations for the outcome of the sale and the use of the money realized from it. “Our sense is this is particularly true regarding share repurchases, which could have been the preferred return method vs. the special dividend,” he elaborated.
IGT used the occasion to restate its goal of reducing its debt load to three times cash flow from a current 3.5 times leverage. “We expect cash flows to be more predictable as a pure-play lottery company and believe the firm should be involved in many, if not all, major lotto bids going forward,” Katz added.
He observed that, despite being unburdened from its digital and gaming divisions, IGT might now pursue online sports betting and igaming. Katz deemed this “strategically appropriate over time, as with the plans in Italy.”
Katz also felt the conclusion of the IGT-Apollo deal left a lot to be sorted through. “For now, we believe the Street continues to process the prospects for the remaining business and its value given the lengthy period of significant catalysts.”
He continued by saying that these reassessments included the Italian lottery contract, which had been much more expensive to IGT than anticipated. Katz said IGT leadership would “begin conveying its strategies and earnings power in the near term.”
