Positive Perspective on Lottery Industry Spurs IGT Rating Uplift
IGT's stock soared yesterday following a positive upgrade from Stifel analyst, Jeffrey Stantial, who moved the company from "hold" to "buy" and increased its target price to $26. This upgrade is mainly based on the improved prospects of IGT's lottery business and the reduced risk in Italy.
In a note to his clients, Stantial explained that the planned spin-off and merger of IGT's global gaming and PlayDigital units with Everi had been a drag on the stock. However, once this deal is completed, this concern could vanish. He noted that shares of IGT have continued to fall even after reporting strong lottery trends in the first quarter. Stantial believes that the current drop in share price is due to mechanical factors related to the spin-off.
Under the proposed transaction, IGT investors will own 54% of the new company, while Everi shareholders will control the remaining 46%. The merger is expected to be finalized later this year or early next year.
Italy's Lottery Retender Eases Concerns
One of the primary issues causing uncertainty in IGT's stock this year has been the potential retender for Italy's lottery rights. Italy, the third-largest economy in the Eurozone, generates a substantial portion of IGT's 2023 earnings before interest, taxes, depreciation, and amortization (EBITDA), accounting for approximately 22% of its global lottery segment's adjusted EBITDA.
IGT provided an optimistic update on the Italy retender situation during its first-quarter earnings report, and Stantial noted that the only competition for IGT in the retender could come from Sisal. However, he pointed out that Sisal's parent company, Flutter Entertainment, may not want to invest nearly $1.1 billion upfront to acquire the contract.
Better-Than-Expected Sale Price for IGT
When IGT initiated a strategic review about a year ago, analysts anticipated that the sale of its global gaming and PlayDigital units could generate between $4 billion and $5 billion. However, the agreement with Everi values the deal at $6.2 billion, which may indicate that IGT deserves more credit for its strong negotiation skills.
Once completed, the merger with Everi will allow IGT to focus solely on its lottery business, a segment often overlooked by the investment community. Thanks to the deal, IGT is transforming into a more lottery-centric firm with a simpler investment thesis, potentially changing how the market now views the company.
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