Three top slot makers had the their price targets trimmed by Deutsche Bank analyst Carlo Santarelli earlier today.
PlayAGS’ $12 a share was lowered to $11, International Game Technology’s $37 per share went to $35, and Light & Wonder took a cut, from $53 to $48. The revised price targets reflect the point at which Santarelli thinks the stocks should be trading as of 2024. Currently, PlayAGS sells for $4.37 a share, IGT for $16.81, and Light & Wonder for $42.77, so Santarelli expects all but the latter to accrete exponentially in value over the next 18 months.
The Deutsche Bank analyst did not elaborate on the thinking behind his recalibration of the stocks’ potential. However, he did lay out some downsides and, in a few cases, upsides to his prognostications.
IGT’s risks include operators holding back on new-game spending, the potential loss of critical lottery contracts, supply-chain disruptions, and “unfavorable outsized moves in foreign currencies that have a material impact to EBITDA” (earnings before interest, taxes, depreciation and amortization).
The possible upsides for Light & Wonder are threefold: a newly diversified business that could increase the company’s economic traction; a continuation of the current robustness of domestic gambling spending; and ongoing investor enthusiasm concerning sports betting and internet casinos. Risks included”an inability to grow the social and igaming businesses in an ROI-friendly manner” via mergers and acquisitions, as well as adverse developments in the U.S. economy that discourage casino patronage and spending.
PlayAGS was seen as riding the potential continuation of the historic highs in gross gaming revenues from slots in U.S. markets, as well as a possible resurgence in sales of electronic table games. Other possible tailwinds would involve a faster-than-anticipated turnaround in PlayAGS’ interactive segment, along with any moves made by management to create additional strategic value.
Like its rivals, PlayAGS is at risk from a longer-than-expected replacement cycle and is at the mercy of the supply chain. If possible international-expansion opportunities fail to manifest, that would also be a setback. PlayAGS is seen as uniquely vulnerable among the three by being concentrated in only a few states, while consolidation among the casino-operator sector could hamper its ability to dictate prices.
