International Game Technology’s “business and outlook remain healthy,” pronounced Truist Securities analyst Barry Jonas after virtual meetings with members of the company’s brain trust. In attendance for IGT were CFO Max Chiara, Senior Vice President of Investor Relations Jim Hurley Sr., Director of Investor Relations Linda Rosenthal, and Senior Manager of Information Technology T.J. Sweeney.
Jonas concluded that IGT’s 2025 targets “are looking more achievable.” Although he maintained a “Buy” rating and stood pat on his $37-per-share price target for the stock (which was trading at the time for $32.20 a share), IGT shares rallied to gain 10 percent on the day.
“Management reiterated that the genesis of the strategic-alternatives review was driven by the lack of market appreciation for the current structure of the portfolio, following recent structural margin improvements across segments,” the analyst wrote. Failing to perceive additional synergies between its lottery division and its gaming/digital one, IGT management mulled a spinoff of one or the other.
Still, “A lottery-only business would likely have a more volatile capex cycle, despite the sizable proceeds from a potential sale,” Jonas cautioned. He added that, lacking the cash flow a diversified business generates, IGT would have to undertake a wider leverage ratio as a hedge against spikes in capex.
Near-term, IGT management said it was “comfortable” with its third-quarter guidance and anticipated revenue of $1 billion. Jonas extrapolated that to mean cash flow of between $100 million and $420 million, below or just up to his $420 million projection.
“Management noted that while there was a market perception of jackpot fatigue entering Q2, strong jackpots in July and August showed a reversal of this trend,” he wrote. Overseas, where IGT does a sizable volume of business, the company expects a higher number of potential customers to attend Global Gaming Expo next month, signaling a recovery in international trade.
One such overseas market is Italy, where IGT faces a lottery contract renewal in October 2025. Executives said it was too early to have any visibility into the bidding process. However, “In prior successful bids, factors other than deal economics were also important, including technical-merit history, implementation timelines, and technology innovations.” Requests for proposals are due early in 2024.
In the wake of COVID, player trends in the lottery segment “remain strong,” as punters buy lottery tickets more frequently than before and spend more per session. As lotteries go digital, Jonas added, “The refresh aligns with the segment business-model goals.”
It’s clear sailing for IGT in North American lotteries for the next two years, given the absence of significant, pending, contract renewals. Management said it might vie for lottery contracts in certain unspecified markets, but those wouldn’t be “significantly material.”
IGT expects a five percent improvement in operating income in its gaming segment, thanks to the resolution of pandemic-related restrictions and a decentralized supply chain. “Management highlighted that the [North American] replacement cycle remains robust, as pent-up demand from COVID remains a tailwind,” Jonas chronicled.
Fully 40 percent of IGT’s slot sales were to tribal casinos, lauded for their “resilient customer base.” In Latin America, the company is seeing a fairly even distribution of leased and bought-outright games, an outcome that met with management approval.
Driven in part by the popularity of such slot games as Mystery of the Lamp and long-running Wheel of Fortune, North American sales saw increased market-share penetration and “strong growth” through the last two quarters. Las Vegas-based performance remained potent, offsetting some “mixed consumer trends” at regional casinos.
“IGT’s anecdotal sources show a tail of pent-up demand in terms of slot replacements that could support sales for the near future,” Jonas reported. “Management believes that even in the event of a consumer slowdown, this pent-up demand should allow replacement sales to remain resilient for the foreseeable future.”