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Scientific Games (SGMS) to Restructure Business to Boost Growth

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Scientific Games unveiled its plan to divest the Lottery and Sports Betting businesses, on Jun 29. The company is evaluating strategic alternatives for these businesses, including an initial public offering (IPO), combination with a special purpose acquisition company (SPAC), an outright sell or a combination with another business.

Markedly, in first-quarter 2021, the Lottery segment accounted for 34% of revenues, increasing 17% year over year to $248 million, driven by higher international product sales.

Moreover, the company’s Digital segment, that offers iGaming, iLottery and sports betting solutions and services, accounted for 11.8% of revenues. Digital revenues increased 11.7% year over year to $86 million in first-quarter 2021.

The announcement helped Scientific Games shares to increase 2.3% to close at $77.68 on Jun 29. The company’s shares have returned 87.3% year to date compared with the Computer-Services industry’s gain of 10.1%.

 

 

Divestiture to Boost Prospects, Deleverage Balance Sheet

The divestiture plan will help Scientific Games to focus on expanding its Gaming, iGaming and SciPlay businesses.

Moreover, the company plans to deleverage the balance sheet. Markedly, Scientific Games had a total debt of $9.1 billion as of Mar 31, 2021 compared with $9.3 billion as of Dec 31, 2020.

The divestiture of the Lottery and Sports Betting businesses will definitely boost Scientific Games’ liquidity. As of Mar 31, the company had $898 million in available liquidity.

Increased liquidity will help Scientific Games to invest in content and technology as well as enhanced monetization opportunities.

Accretive Acquisitions to Boost Top-Line Growth

Moreover, strategic acquisitions have been a key part of Scientific Games’ growth story over the years. Earlier acquisitions of Bally Technologies, WMS Industries, Parspro and Provoloto, Barcrest Group Limited, Sceptre Leisure Solutions, and GameLogic have expanded the company’s ability to offer computerized systems and services to the global gaming industry.

In June 2020, SciPlay completed the acquisition of the privately held mobile and social game company Come2Play, which expanded and diversified the former’s existing portfolio of social games. The company plans to launch an additional casual game in 2022.

In May 2021, Scientific Games completed the acquisition of SportCast, a well-known provider of sports betting, thereby expanding its portfolio.

Zacks Rank & Stocks to Consider

Currently, Scientific Games has a Zacks Rank #2 (Buy).

Zoom (ZM - Free Report) , Digital Turbine (APPS - Free Report) and CDW Corporation (CDW - Free Report) are better-ranked stocks in the broader technology sector. While both Zoom and Digital Turbine sport a Zacks Rank #1 (Strong Buy), CDW has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Zoom, Digital Turbine and CDW is pegged at 15.6%, 50% and 13.1%, respectively.

 

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