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Scientific Games Hits 52-Week High: What's Aiding the Rally?

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Share price of Scientific Games Corporation ) rallied to a new 52-week high of $50.53, eventually closing a tad lower at $50.45 on Nov 17.

Notably, its shares have gained 260.4% year to date, substantially outperforming the industry’s 23.7% rally. The outperformance can be attributed to growth in its Gaming, Lottery and Interactive segment revenues.

In the last reported quarter, revenues increased 6.8% from the year-ago quarter to $768.9 million and beat the Zacks Consensus Estimate of $753.6 million.

Currently, Scientific Games carries a Zacks Rank #3 (Hold). The company has a market capital of $4.2 billion.

What’s Backing the Rise?

Scientific Games with its innovative product pipeline enjoys a premium position in the gaming equipment space, as well as in the instant ticket and online lottery markets. The company’s top line continues to be driven by robust performance from the gaming and interactive businesses.

The company’s gaming segment is benefiting from increasing shipment of replacement units, which is backed by high adoption of the TwinStar J43cabinets.

At the Global Gaming Expo in Las Vegas this year, the company showcased all the innovative new products that are set for launch in the year ahead. The company will introduce three James Bond themed games in its new cabinets, which include Gamefield 2.0, TwinStar J43 and TwinStar V75.

The company’s lottery business is also well poised to gain from the growing popularity of the WILLY WONKA GOLDEN TICKET game. On the last conference call, management noted that the game so far has been selected by 16 lottery states. Moreover, in half of the 12 states in which it has been launched, it became the “highest indexing $10 game.”

The company’s continuous win and expansion of significant contracts are expected to boost top-line growth going forward. Recently, it replaced a long-time competitor to win a contract from Kansas Lottery to provide lottery gaming systems and related services for a decade.

Last week, the company announced the launch of its “next-generation gaming system” for Denmark-based Danske Spil lottery. We note that international expansions also provide significant growth opportunities to the company.

Moreover, in the Interactive segment, robust performance of apps like Jackpot Party Social Casino, Quick Hit Slots, 88 Fortunes and Bingo Showdown is also a positive.

However, the company’s leveraged balance sheet results in significant interest expense. Adding more debt for funding acquisitions will further enhance its indebtedness and weigh on its profitability.

Key Picks

Better-ranked stocks in the broader technology sector include Lam Research (LRCX - Free Report) , Micron Technology (MU - Free Report) and NVIDIA Corporation (NVDA - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Lam Research, Micron and NVIDIA is currently projected to be 14.9%, 10% and 11.2%, respectively.

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