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Scientific Games Corporation (SGMS - Analyst Report) and Hasbro Inc. (HAS - Analyst Report) recently expanded their long-term licensing agreements. The duration of the licensing agreements has been extended from 2017 to 2020 and includes some of Hasbro’s leading brands such as MONOPOLY. This enhanced agreement will help Scientific Games to come up with new games for its customers.

The extended partnership deal will enable Scientific Games to access new channels of distribution and additional brands. The partnership will help Scientific Games to solidify its footprint in the emerging real-money Internet wagering market and will also extend its geographic presence.

However, we believe that these measures will take some time before they start contributing to the overall results. Moreover, increasing investments for product development are also expected to hurt profitability in the near term.

The domestic lottery industry is undergoing a transition, which involves increasing involvement of private vendors in state lottery management, higher prize payouts and introduction of tiered pricing for national jackpot games to add impetus to the sagging U.S. lottery industry. We believe that Scientific Games is well positioned to benefit from these transitions, going forward.

We believe that the company’s diversified product offerings, recurring revenue business model; strong growth of the Internet-based business will drive the stock over the long term.

The sluggish macroeconomic condition in important international markets and the transition of the domestic lottery industry is undergoing a transition is however the primary headwind for Scientific Games going forward. Increasing investments for product development is also expected to hurt profitability in the near term.

However, the company faces stiff competition from the likes of International Game Technology (IGT - Analyst Report), GTech S.P.A. and Bally Technologies Inc. (BYI - Snapshot Report), which is expected to hurt profitability, going forward.

Currently, Scientific Games has a Zacks Rank #3 (Hold).

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