A less-than-inevitable contract for the Italian lottery business helped prompt one analyst to shave a dollar off his price target for International Game Technology stock.
In an April 14 investor note, Jefferies Equity Research analyst David Katz wrote, “While the lottery business should prove to be among the most stable in our coverage, the pending competitive Lotto contract bid and spin/sale of the gaming business remain overhangs for the shares.” Katz was alluding to the $4 billion spinoff of IGT’s slot machine business to Apollo Management.
The analyst lowered his price target on IGT shares from $19 apiece to $18, with a Hold rating. IGT stock was trading at $15.61 per share at the time.
While he kept his first-quarter revenue projection at $637.1 million, Katz lowered his cash flow target to $257.9 million from $296.6 million. Katz also took $100,000 off his full-year revenue forecast and made a small cut in his cash flow prediction.
In explaining his moves, Katz noted that IGT has held its Lotto contract in Italy for 35 years. However, the Sisal division of Flutter Entertainment has entered a rival bid, “given its presence with the Superenalotto contract and aspirations of growing its lottery and digital cross-marketing presence in Europe.”
Katz signaled that IGT’s chances of a successful Italian renewal were excellent. He observed that its previous bids were in the range of $1 billion each, with additional capex investment required.
As for the Apollo transaction, projected to close in September, Katz noted, “The deal will be highly accretive once closed, although the length of time to closing in the current environment is being risk-adjusted.”
The Jefferies analyst therefore took a bullish view on IGT stock, agreeing that it should trade as much as four turns higher at seven to nine times cash flow. It presently trades at 5.2 times EBITDA.
“While we do not believe it is likely, IGT shares could see further downside should it lose the bid, and upside should it win,” Katz concluded.
