DoJ's Ruling Acts as Bliss for IGT - Analyst Blog
28 Dezembro 2011 - 7:00AM
Zacks
The casino operators and game
providers may just have got their Christmas gift. Well, they stand
to gain only if the report of the Department of Justice (DoJ) being
en route to legalize most forms of online gambling within its
borders is true.
As reported, the ruling enables the
states to allow online lottery tickets and other forms of online
gambling games to its residents. The casino operators like
Las Vegas Sands Corp. (LVS) and MGM
Resorts International (MGM) stand to benefit from the
ruling given their online presence, as they can now reach out to a
larger clientele. Subsequently, the casino game providers including
International Game Technology (IGT) and
WMS Industries Inc. (WMS) would also tank in the
gains by providing gambling games online, as demanded.
Why IGT Should
Benefit?
This ruling comes at an opportune
time for IGT, who is set to launch its first cloud based service,
‘IGT Cloud’, at the Earls Court Exhibition Centre, London, on
January 24-26, 2012. By availing the service, casino operators
would be able to offer its clients a unique gaming experience.
Thereby, it would increase client satisfaction, which would result
in higher margins for the operators.
This ruling comes as a boon for
IGT, which expects half of the projected revenues ($2 billion to
$2.5 billion revenues in the next 3-5 years) to come from core
sector and the other half from the emerging initiatives like
interactive and cloud computing.
Additionally, analysts expect the
casino gaming market to revive in 2012 from its slump in the
preceding years, but they doubt if the market would get back to
2007 levels.
The recent acquisition of
Entraction Holding AB will also have a positive impact on the top
line of IGT from 2013-2014. The acquisition has also provided an
exposure to IGT in the online B2B for bingo, poker and sports
gambling. Online revenues forms only 5% of the revenue component
and company expects to increase that proportion going forward.
Expectedly, this DoJ ruling would further boost the online revenues
in the long run.
Our Take
Sluggish replacement sales will
remain a primary headwind for IGT in the near term and continued
competition from Bally Technologies Inc. (BYI) and
WMS Industries will keep the stock range bound in the near
term.
With the IGT Cloud services, we
expect IGT to gain traction in the casino gaming industry, as it
would likely be well accepted by new casino properties, thereby
improving the company’s top line.
Further, we believe that
international expansion, an impressive product portfolio,
cost-cutting initiatives, reducing 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 on a
short-term basis.
BALLY TECH INC (BYI): Free Stock Analysis Report
INTL GAME TECH (IGT): Free Stock Analysis Report
LAS VEGAS SANDS (LVS): Free Stock Analysis Report
MGM RESORTS INT (MGM): Free Stock Analysis Report
WMS INDS INC (WMS): Free Stock Analysis Report
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