Top executives from International Game Technology met with Credit Suisse analyst Ben Chaiken, who reiterated his belief that the company is undervalued, a $50-a-share stock trading at $24.50. Other than $165 million in dividend payments, IGT’s outlook was of the steady-as-she-goes variety.
CFO Max Chiara and investor-relations viceroy Jim Hurley sat down with Chaiken and walked him through IGT’s fundamentals-first approach.
Chiara and Hurley held firm on fiscal-year projections of $4.1 billion to $4.3 billion in revenue, with an operating-income margin averaging 21 percent. These are the same forecasts made back in November, with the addition of $110 million in “headwinds,” largely related to supply-chain issues.
“Maintaining guidance between the investor day and the most recent guide implies that the core business is performing ahead of original expectations,” extrapolated Chaiken. “We don’t think this is well understood,” he added.
To the analyst’s way of thinking, the investor guidance is conservative, especially if the omicron variant continues to subside. “Bottom line, core fundamentals seem stronger than is understood.”
Chaiken outlined two scenarios toward achieving prosperity for IGT. The first was reaching a target of $2.3 billion in cash flow by 2025 through a mix of cost savings ($200 million in extent), a growing lottery business, and a comeback in casino gambling, “which is trending faster than expected.” Alternatively, he thought IGT could spin off its digital and sports-betting divisions, thereby raising capital. Either way, “We don’t think there is a scenario where IGT is stagnant for a multiyear period.”
As for the aforementioned headwinds, Chaiken estimated that they would consist of $40 million in supply-chain impacts this year (double what they were in 2021), but they could reverse into $20 million to $25 million of tailwinds in 2023, especially if IGT makes spot purchases of commodities in the near term.
In the slot sector, Chaiken saw “a clear path” to 2019 levels of business, with IGT’s installed slot base even exceeding what it was three years ago, “given the accelerated consumer-spending environment and the benefit of higher-yielding game mix relative to ’19.”
Finally, as an example of the “valuation disconnect” between Wall Street and IGT, Chaiken floated the idea of the company selling its core lottery business. This would, however, bring only five times cash flow, by his estimate, unlike Scientific Games lottery division, which went for 12 times EBITDA. Nor does he think the Street is assigning any value to IGT’s igaming business, which he expects to prosper further as New York and Ontario, Canada, come online.
