Analysts say IGT collapse is symptom of speculation, not fundamental erosion
International Game Technology (NYSE: IGT ) shares are down 13.37% over the past month and are 22% below the stock's 52-week high , exceeding the definition of a bear market. But at least one analyst believes the plunge was the result of speculation rather than a comment on fundamentals.
That's the view of Stifel analyst Jeffrey Stantial, who in a new client note rates the lottery operator and slot machine maker a "buy" with a $35 price target, representing a 32% upside from Monday's closing price . Despite the plunge in shares, IGT still faces tailwinds, including a steady slot machine upgrade cycle.
Given historical cyclicality and the misunderstanding of operator commentary this earnings season, we are seeing investors become more focused on the slot replacement cycle. "Management noted that the pipeline remains strong through the end of the year, but acknowledged that long-term guidance remains limited, particularly as demand for components in North America remains solid (mid-2Q estimates) above 2019 s level. "
IGT is the manufacturer of rouletteslot machines which are some of the most popular slot machines in American casinos.
IGT lottery business remains attractive
Following a recent string of record-breaking Mega Millions and Powerball jackpots, IGT management told Stantial that there were some signs of "jackpot fatigue."
However, this does not change the overall message of IGT’s often undervalued lottery sector. IGT's lottery business accounts for 75% of pro forma earnings and is a key driver of earnings before interest, taxes, depreciation, and amortization (EBITDA), but it is undervalued relative to competing assets.
Still, data shows domestic lottery sales have grown significantly this year, and lottery tickets have historically been a component of the gaming industry that has proven resilient when consumers cut back on discretionary spending.
"Our survey shows that multi-state jackpot sales so far this year are approximately 80% higher than in 2019," Stantial added. "Overall, even with declining consumer numbers, lottery demand remains strong and is likely to Resilient (recall that during the global financial crisis, US lottery sales fell less than 1% from peak to trough).”
IGT can be a cleaner lottery game
In June, IGT said it was exploring "strategic alternatives" for its global gaming and PlayDigital divisions, including a potential sale of the divisions. In September, reports surfaced that Apollo Global Management (NYSE: APO ) could launch a run on its global gaming unit.
If IGT spins off these businesses, the company would exit the highly competitive slot machine segment while also cleaning up its overall investment thesis, which could put the highly profitable lottery division in the spotlight for investors. Stantial said that even if the sale of slot machine units is not imminent, IGT can thrive in an increasingly competitive environment.
“Nevertheless, management expects this momentum to continue into 2024, particularly 1) strong installation numbers/velocity of Prosperity Link and Mystery of the Lamp, 2) steady vessel share of steppers powered by DiamondRS (~ 40%), and 3) the opportunity to participate in a video WAP led by a new Whitney Houston theme," the analysts concluded.
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Source: www.casino.org