Strategic review progresses slowly, IGT rating downgraded
Shares of International Gaming Technology (NYSE: IGT ) plunged Thursday after Jefferies downgraded the company.
The research firm downgraded the gaming gear maker to "hold" from "buy" while lowering its price target to $29 from $36. This new forecast implies a 15.3% increase from current levels. Jefferies told clients that IGT's strategic review announced last June was unlikely to come to fruition in the short term.
At the time, the gaming company said it would explore strategic alternatives for its global gaming and PlayDigital units. These options may include the sale, merger or spin-off of the company, or maintaining divisions and increasing investments in those companies. The London-based company believes exploring alternatives in these sectors can increase shareholder value.
The announcement sparked a surge in IGT's stock price, which led to an impressive rise over the next few months. The stock fell in the fourth quarter, a downward trend that has continued into 2024, with the stock down 9.58% last week. IGT is currently 26.32% below its 52-week high, exceeding the definition of a bear market.
The sale and spin-off of IGT is unlikely in the foreseeable future
While IGT has hired Deutsche Bank, Macquarie Capital and Mediobanca as financial advisers, suggesting the company may be planning to partner with the global gaming and PlayDigital units, Jefferies told clients it has no immediate plans to do so but expects the situation to become clearer.
Since the announcement of the strategic review, speculation has emerged regarding potential buyers of IGT’s assets. Last September, for example, reports surfaced that Apollo Global Management (NYSE: APO ) might make a takeover bid for IGT's global gaming unit.
Such a deal could fetch $4 billion to $5 billion, which is impressive compared to IGT's current market capitalization of $5.23 billion. This price range also represents a discount to slot rival Aristocrat Leisure's valuation. However, a formal offer from IGT’s slots division has yet to be released.
Jefferies added that IGT's Italian lottery business faces some unresolved issues and expects other gaming stocks to outperform the "Wheel of Fortune" maker this year.
Why IGT Trading is Important
IGT may be motivated to spin off its Global Gaming and PlayDigital divisions in some form, as it would allow the company to focus on its lucrative lottery business. It can be said that this market segment does not receive the recognition it deserves from the investment community.
The lottery business accounts for 75% of projected earnings and is a key driver of earnings before interest, taxes, depreciation and amortization (EBITDA), but is undervalued relative to competing assets. Analysts believe that when lottery assets are tied to conglomerate-like bookmakers, as is the case with IGT, they do not receive the expected appreciation from market participants.
Data confirms that domestic lottery sales have grown rapidly this year. Historically, lotteries have been an integral part of the gaming industry and have proven to be resilient when consumers cut back on discretionary spending.
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Source: www.casino.org
