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This stock might not
be as much of a gamble as you think. International
Gaming technology (IGT - Analyst Report)
is a Zacks Rank #2 and trades at just over 12 times forward earnings.
The company has beaten the Zacks Consensus Estimates
two earnings reports in a row (5 of the last 6), exceeding analysts’
expectations by an average of 17.4%.
IGT can trace its roots all the way back to the 1950s, but
since going public in 1981 the company has reinvented itself, expanded
now one of the largest manufacturers of computerized casino gaming
operators of proprietary gaming systems in the world. It was
the first to develop computerized
video gaming machines and has made a recent foray into online gaming.
IGT is also a member of the
S&P 500 and is headquartered
in Nevada with offices in Reno and Las Vegas.
IGT is in the midst
of a proxy battle for board seats as the company looks to broaden its
and maybe alter its trajectory.
games (slots) is still paying the bills for IGT, the next generation of
(and the company) may lie online and in social media. Current
management has begun to take the
company in the online direction through mergers and acquisitions.
Baby-boomers are the
#1 target audience for companies like IGT, but they are gambling less
the decline as the biggest segment of gamblers in the U.S.
Younger, more tech savvy individuals are spending
more money and time at casinos, but they are less willing to sit at a
machine for 4 hours. They are also
spending quite a lot of time online, wagering billions of dollars
IGT spent as much as $500 million
last year for Double Down
Interactive, a maker of casino-like games for Facebook.com. It paid
million in 2011 for Entraction Holdings AB, a European online gambling
(IGT shut down the online poker business of Entraction only a year
after the acquisition,
they intend to redistribute the talent and technology from the deal)
These acquisitions cost big money,
but management believes that
they are necessary to IGT’s relevance and success in the future of this
But some shareholders don’t agree
with this thesis and believe
that IGT should stick to their core and grow their business organically.
Regardless of what side you’re on,
IGT is making money and
will need to innovate to keep up.
Shares are down about 30 percent from
an October 2009 high
under CEP Patti Hart, compared with a 37 percent increase for the
Index over that time. IGT is no doubt at
an inflection point, but they do have a strong core business and I
management is going in the right direction by researching and
online and social media based operations.
Even if it means spending money on acquisitions.
I also believe that online poker and
gambling should and
will return in a big way to the states, perhaps with the caveat that
have to be located in the U.S.(in specific states) and certain taxes
be collected from those operators and/or participants.
The U.S. can use all the revenue we
can get! Gaming industry experts estimate that something
like 10 million to 15 million U.S. gamblers wager $4 billion to $6
online annually; why should states shun that potential revenue?
To me the logic is
there, but logic is often hard to come by in Washington and politics in
The 2012 IGT annual meeting will be
held on March 5th
and should be interesting to watch. IGT
remains on the right side of earnings growth trends.
The company primarily conducts its business through three
segments: Gaming operations, Product Sales and Interactive. The company
76% of its 2012 revenue from domestic operations (U.S. and Canada),
remaining 24.0% came from international markets. IGT earned
revenues of $2.15 billion in fiscal
International gaming Technologies has
been on a stable
growth trajectory for 5 months, with the exception of a miss in the
of 2012. The company posted a 64.71%
rise in Q4 income compared to the same quarter a year prior and an
increase in sales in that same period.
Analysts have been moving estimates
higher over the last 90
days for IGT’s results in the coming quarters and fiscal year.
Shares have been catching up to the increased
estimates, but the stock has lagged behind these bullish estimates.
In fact, shares are about flat over the last
year while earnings have increased. IGT’s
trailing multiple is also 15% lower than last year.
Their industry is ranked 72 out of
265 and IGT is expected
to earn 30 cents per share when they report earnings on April 23rd.
Estimates are for IGT to earn $1.26 in FY
2013 and $1.32 in FY 2014.
The price and consensus chart shows shares below the range
of the “normal” relationship the shared with consensus estimates over
3 years. The correction in the estimates
for 2012 created an equally nasty correction in the stock price (in the
chart below), but the current 2013 and 2014 estimates are increasing
generously above where estimates usually are in relation to IGT shares.
Shares are beginning to follow this
trend, but should have
some upside from here if the bullish earnings trend remains intact.
IGT remains in a strong bullish
channel and is near the
lower area of that range, indicating an advantageous entry point.
Support comes $15.44 and $15.25,
which are the lower channel
boundary and the 50 day VWAP average. The
50 day moving average recently crossed above the 200 day moving
is another positive sign for the longer term
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