IGT (IGT) Shifting Focus in Right Direction, Investors Will Collect the Windfall - Barron's
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International Game Technology (NYSE: IGT) loves making slot machines almost as much as gamblers love pulling that lever...and both might add up to big gains for investors, according to Barron's.
IGT just shipped a slew of the machines to two new casinos opening in Ohio and several other casinos slated to open up this year as states continue to search out new streams of revenue. Barron's quoted firm Morgan Stanley in saying about 20,000 new slots will be added to casinos in 2012 alone.
Slot machines generally contribute anywhere from 70 percent to 80 percent of overall profits for North American casino operators.
IGT has about 50 percent of the 950,000 installed base in North America, with about 10 percent to 20 percent share abroad. IGT gets a cut of all those beautiful machines, too.
Shares of IGT currently go for about 14 times earnings estimates, far below its historical multiple of 20 times. Analysts are expecting earnings growth rate of 20 percent over the next year, making IGT look even more undervalued.
Barron's noted IGT was historically a growth stock, but floundered in the mid-2000s after investing in expensive server-based systems ahead of the stock market drop. The company recently announced the $500 million acquisition of Double Down Interactive, the developer of Facebook's (Nasdaq: FB)(NYSE: FB) DoubleDown Casino. The acquisition both angered investors and put casino operators on alert, as many saw the acquisition putting IGT on a competitive playing field should online gaming become legal.
But newly appointed CFO John Vandemore said the deal was "smartly structured," according to Barron's. Specifically, Double Down's purchase price is being based on the company meeting performance metrics. He said Double Down will allow IGT to expand its distribution and introduce its games to a whole new demographic.
Geez, this is starting to sound a little like Big Tobacco.
Though analysts are looking for stronger shipments, many agree the overall replacement cycle for machines remains weak. In response, Vandemore said IGT is responding by cutting costs and operating more efficiently.
IGT is planning on $100 million worth of buybacks in 2012 and, with the company generating gobs of free cash, analysts agree: its hard to find a market leader with such growth potential and operating metrics being offered for such a cheap valuation.
Shares of IGT closed up 3.1 percent to $17.21.
IGT just shipped a slew of the machines to two new casinos opening in Ohio and several other casinos slated to open up this year as states continue to search out new streams of revenue. Barron's quoted firm Morgan Stanley in saying about 20,000 new slots will be added to casinos in 2012 alone.
Slot machines generally contribute anywhere from 70 percent to 80 percent of overall profits for North American casino operators.
IGT has about 50 percent of the 950,000 installed base in North America, with about 10 percent to 20 percent share abroad. IGT gets a cut of all those beautiful machines, too.
Shares of IGT currently go for about 14 times earnings estimates, far below its historical multiple of 20 times. Analysts are expecting earnings growth rate of 20 percent over the next year, making IGT look even more undervalued.
Barron's noted IGT was historically a growth stock, but floundered in the mid-2000s after investing in expensive server-based systems ahead of the stock market drop. The company recently announced the $500 million acquisition of Double Down Interactive, the developer of Facebook's (Nasdaq: FB)(NYSE: FB) DoubleDown Casino. The acquisition both angered investors and put casino operators on alert, as many saw the acquisition putting IGT on a competitive playing field should online gaming become legal.
But newly appointed CFO John Vandemore said the deal was "smartly structured," according to Barron's. Specifically, Double Down's purchase price is being based on the company meeting performance metrics. He said Double Down will allow IGT to expand its distribution and introduce its games to a whole new demographic.
Geez, this is starting to sound a little like Big Tobacco.
Though analysts are looking for stronger shipments, many agree the overall replacement cycle for machines remains weak. In response, Vandemore said IGT is responding by cutting costs and operating more efficiently.
IGT is planning on $100 million worth of buybacks in 2012 and, with the company generating gobs of free cash, analysts agree: its hard to find a market leader with such growth potential and operating metrics being offered for such a cheap valuation.
Shares of IGT closed up 3.1 percent to $17.21.
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