Analyst Deems International Game Technology Worth Investing In
Shares of International Game Technology (NYSE: IGT) have increased by 42.64% so far this year, but this doesn't mean there's no more value left in the stock.
After a strong second quarter where the company's gaming and lottery divisions showed nice momentum, some analysts are becoming more optimistic about IGT. One such analyst is David Bain from B. Riley, who, in a note to clients on Wednesday, maintained a "buy" rating and set a price target of $43 on the stock. This suggests that the stock could rise by about 43% from the closing price on August 1st.
We believe IGT will make over 70% of its projected 2023 EBITDA from its global lottery business. While lottery companies tend to trade at around 11x 2023E EV/EBITDA and recent lottery M&A multiples have ranged from 12.1x to 14.3x, IGT is currently trading at just 6.6x 2023E EV/EBITDA.
IGT generates about 25% of its EBITDA from gaming, and its projected gaming EBITDA growth is much higher than that of its peers, yet the stock is trading at a 15% discount to the average for casino suppliers and lags behind "larger" competitors.
IGT's lottery business, which represents 75% of its pro-forma earnings, is a significant EBITDA contributor and is undervalued compared to other similar assets.
IGT Trying to Change Investment Perception
Lottery businesses, including IGT's, tend to be highly profitable and cash-generating, but US investors don't always give them the credit they deserve.
IGT is aware of this situation and has decided to take action. In June, the company announced it was considering strategic alternatives for its global gaming and PlayDigital units. This could help clarify the overall investment thesis and put the spotlight on its profitable lottery arm, which could be an attractive target for potential buyers.
"In gaming, IGT is the first supplier to report. However, we believe gaming year-over-year EBITDA growth will outpace its peers while gaming metric growth will be above the peer group," wrote Bain. "IGT's second-quarter North American install base increased by 4% year-over-year and 1% quarter-over-quarter. This marked the fourth consecutive quarter of install base increases and the second quarter in a row with year-over-year growth."
Bain added that the strength in IGT's digital and gaming segments could potentially create opportunities for transactions involving those businesses.
IGT: A Smart Lottery Bet
While winning the lottery is a very difficult task, investors might have better chances with shares of IGT, a company that has a clear connection to the lottery industry.
Due to its lottery exposure, IGT benefits from rising jackpots since these attract more players to the pool.
"While comparing lottery growth in the second half of the year to last year is challenging given the large jackpots in the previous period, we believe larger jackpots are becoming more common, and the third quarter should benefit by around $5 million from higher Powerball and Mega Millions jackpot levels," concluded Bain. "Notably, North American same-store sales trends improved both quarter-over-quarter and into July. In addition, IGT has long-term growth drivers such as iLottery, and it's continuing to expand its geographic presence/gain market share, with its re-entry into Brazil being a strong example."
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Source: www.casino.org
