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Games and system solutions to enrich gamers’ experience were recently displayed by International Game Technology ( IGT - Analyst Report ) at the National Indian Gaming Tradeshow and Convention 2012 (NIGA 2012), held at San Diego, California from April 1 to April 4, 2012.
At the event, IGT showcased world-class casino slot games such as Day of the Dead video slots, Red Hot 7's Respin spinning-reel slots, Reel Edge Atari Centipede and much more. Additionally, IGT’s video poker game, Build A Wheel Poker, was up for display with an active video wheel for the first time.
Apart from these games, IGT’s sbX casino management system had been showcased. sbX is the first server-based gaming solution approved by the Gaming Standards Association (GSA) that allows its operators to run games of their own choice at any time, facilitating better casino floor management at lower operational costs. sbX also provides complete freedom to the players in terms of selecting games of their own choice instantly and experiencing a better real-life feel of casino management.
IGT’s online casino games – that can be played via smartphones and laptops such as multi-player poker, sports betting and bingo – were also displayed along with some of IGT’s mega jackpot games.
These exhibitions are the perfect setting for IGT’s products as it showcases innovations in the casino gaming field. By adopting IGT’s innovations, the casino operators can offer its players an ultimate gaming experience and the operators will be able to yield higher performance in terms of floor-wide performance. Eventually, IGT would garner new clients.
However, the casino sector continues to face macro-economic concerns due to economic downturn. This forced many casino operators to reduce their costs in an attempt to preserve their liquidity, subsequently resulting in a slower machine replacement cycle. This trend appears to be hurting IGT’s growth outlook. We believe that the cloud initiative has the potential to offset this negative effect, since it would lower costs for casinos.
Moreover, fewer new openings and increased competition from Bally Technologies Inc. ( BYI - Snapshot Report ) and WMS Industries Inc. ( WMS - Snapshot Report ) will keep the stock range bound in the near term.
While sluggish replacement sales will remain a primary headwind for IGT in the near term, we expect sbX to continue to enjoy high demand in both the domestic and overseas markets due to its cost effectiveness. As for the IGT Cloud services, we believe IGT to gain traction in the casino gaming industry, owing to likelihood of it being well accepted by new casino properties.
Despite the near-term headwinds, we believe that international expansion, an impressive product portfolio, cost-cutting initiatives, lesser dependence on the domestic machine replacement cycle, new contract wins, solid free cash flow and strong growth from the interactive business will drive growth over the long term.
We have a Neutral recommendation on the stock over the long term (6-12 months). Currently, IGT has been allotted a Zacks #3 Rank, which implies a ‘Hold’ rating for the short-term.
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