Three days after reporting solid second quarter results, gaming equipment giant International Game Technology held an analyst day in New York City.
At least one Wall Street advisor said the session bolstered his view of the company.
Deutsche Bank gaming analyst Carlo Santarelli told investors in a research note Friday he remains “bullish” on IGT, recommending a buy on the stock with a target price of $35 a share. IGT closed Friday at $22.27 on the New York Stock Exchange.
A few days earlier, analysts praised IGT’s results for the quarter that ended June 30, which showed net income of $121 million on revenues of $1.2 billion.
Santarelli said IGT most likely disappointed forum attendees through the lack of a major announcement “despite no evidence one was forthcoming.” A day earlier, IGT announced a 10-year contract extension with the Michigan Lottery to provide new technology and services through January 2031.
“While IGT spent considerable time walking through the various components of its lottery business, management also briefly touched on their financial outlook, capital allocation strategy, and the evolving sports betting opportunity,” Santarelli said. “Unsurprisingly, in our view, the Q&A session focused primarily on sports betting.”
Santarelli said IGT has been advocating “a reasonable view” on the impact of sports betting legalization in the U.S.
IGT, he said, has taken a “measurable approach” by licensing the company’s technology and offering self-managed models to customers. IGT earns a percentage of net revenues generated by the sports books and can earn additional fees through selling and leasing equipment.
At the New York event, IGT executives said the company evaluated a sports wagering request from MGM Resorts International, but Santarelli said the company “ultimately decided they do not want to be in a position where they are viewed as competing with their existing customers.”
IGT announced plans to expand its sports betting partnership with FanDuel at the Greenbrier Casino in West Virginia later this year.
IGT was once the casino industry’s largest slot machine provider. Consolidation earlier this decade – lottery provider Scientific Games acquired casino equipment manufacturers Bally, Shuffle Master, and WMS – has created competition.
Italian-based lottery giant Gtech acquired IGT in 2015 and assumed the company’s name, creating two titans – Scientific Games and IGT – that provide equipment to both the worldwide slot machine and lottery industries. Meanwhile, Australia-based Aristocrat Technologies has slowly cut into the companies’ slot machine market share.
Macquarie Securities gaming analyst Chad Beynon said IGT’s analyst day was done to further highlight “some of the misunderstood pieces of the business.” He added that the company had “pleasantly surprised” investors with second quarter revenues and cash flow that came in ahead of Wall Street consensus projections.
“We continue to view IGT as a stable free cash generative business with a healthy dividend and the makeup to grow 2019 cash flow on the back of a gaming turnaround and further lottery growth,” Beynon said in a note to investors following the company’s earnings.
Jefferies gaming analyst David Katz told investors IGT’s second quarter results were “indicative of the solid fundamental trends in both slot machines and lottery.”
Katz said IGT’s sales figures showed a slight increase from the first quarter in the company’s North American installed base of slot machines, as well as a similar increase in video lottery terminal games. Both were good signs.
“This result represents the second straight quarter of sequential growth in the North American installed base, which is a critical element of the turnaround in this segment,” Katz said.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
