During an investor meeting with Credit Suisse analysts, International Game Technology announced a $300 million, multi-year stock buyback. Credit Suisse’s Ben Chaiken estimated that it would amount to five percent of IGT’s outstanding shares (which were trading at $29.64 at the time). The company also set goals for deleveraging itself, going down to 3.5 or four times equity next year, but ultimately as low as 2.5X by 2025.
Chaiken wrote that this was “in line with that we were expecting. We think the goal is to help stock trade less like a levered equity, which should expand shareholder appeal.”
IGT executives also projected revenues for the next biennium. For 2022, they expect them to be in the $4.1 billion to $4.3 billion range, escalating to $4.6 billion to $5 billion in 2023. Wall Street’s consensus forecast for 2022 is $4.2 billion, so this too was in line with expectations.
Added Chaiken, “We think rev guidance stronger than expected. At a minimum provides confidence in growth trajectory, which should help multiple.”
Having led with good revenue and stock-buyback news, IGT dropped a modest bombshell in the form of suggesting that it might spin off its betting and digital segments. (The company’s revenues are mainly propelled by lottery sales.) “For context,” explained Chaiken, Scientific Gaming “sold OpenBet for 8x revenue. We model the IGT comparable segment generating ~$200m+ of Digital and Betting revenue in ’22, which at 8x revenues would suggest $8/share of value vs a segment today likely getting < $1-2/share.”
Other goals stated by IGT were to find an additional $150 million in cost savings, having already raised cash flow by $300 million with previous cost cuts. Management also set a benchmark of realizing $4 billion in cash flow from operations.
A relieved Chaiken concluded that, contrary to fears, this wasn’t a “sell” event and said the news was “better than expected.” Management’s announcements, he wrote, “should take [the] stock higher.” He reiterated his “outperform” rating and $57/share price target.
