Jefferies Equity Research analyst David Katz initiated coverage of Brightstar Lottery on July 7. His initial rating on the stock was Hold with a price target of $19 per share. Brightstar (formerly International Game Technology or IGT) was trading at $18 per share at the time.
Katz said that catalysts for the stock yield a “moderate upside” at present. The recent asset sale to Apollo Management, share repurchases, and a new lottery contract in Italy haven’t produced the anticipated value, he explained. “The remaining solid business and its shares bear less upside than others in the sector.”
The Jefferies analyst proceeded to recapitulate what he called a pair of transformational events. The first was the $4 billion sale of IGT’s gaming-machine business to Apollo, during which it merged with Everi Holdings. “This is a clear positive outcome, which management indicated would result in significant capital returns and a lower leveraged company.”
The second nodal event was the successful rebid of the Italian lottery contract, albeit at a heightened €2.2 billion. The price, Katz said, “was considerably higher than the prior concession fee of ~€1 billion and higher than expectations of €1.5-1.7 billion, the result of which is less capital return than expected.”
From these various moving parts, Katz discerned $2 billion being directed toward reducing Brightstar’s debt burden, bringing it to 3.1 times cash flow. The concession fee in Italy would be broken into three parts, with $550 million due up front, $330 million coming in the fourth quarter of 2025, and the remaining $1.5 billion due in the second quarter of 2026.
Capital returns took two forms, totaling $1.1 billion. BRSL shares would be repurchased at a pace of 75 million per quarter over a six-quarter period, while a $3-per-share special dividend would be paid to stockholders.
The future of Brightstar, Katz concluded, came down to “a balance of forces. On the positive side, the clarity around the catalysts provides a base for evaluation.”
Katz liked the retirement of debt and the share buybacks, saying, “Should the company become an ongoing, recurring share repurchaser, we believe it would drive higher valuation levels over time.”
However, he was trepidatious about the cost of the renewed Italian pact, its possible cascading effect on other lotteries, and the amount of competition in the field. This, he said, should be Brightstar’s highest priority for addressing in the near future.
