Casinos & Hotels

Why Argus Sees IGT Shares Down Too Much and Too Fast

Shares of International Game Technology PLC (NYSE: IGT) have sold off handily over the last week, but the independent research firm Argus belies the drop has been too far too fast. Argus maintained its Buy rating on Tuesday, but the firm did lower its price target down to an $18 from $20 versus a recent closing price of $13.82.

The Buy recommendation reflects IGT’s solid earnings and continued efforts to reduce its debt while the company is steadily growing its lottery business. Another benefit ahead will be from the legalization of sports betting in the United States.

The independent firm also pointed out that casinos have been slow to upgrade their equipment in recent years, and slot machine sales can be volatile, but it expects IGT to benefit as it revitalizes franchises like Wheel of Fortune and brings new games to market.

Argus now projects 2019 EBITDA of $1.70 billion to $1.76 billion and sees the timing of its gaming equipment sales to help earnings accelerate in the second half of 2019. Tuesday’s The firm maintained its 2019 EPS estimate of $1.67 and set a 2020 estimate of $1.90 (per share). Its long-term earnings growth rate forecast is 7%.

IGT shares were under continued pressure on Tuesday with shares down 1.2% at $13.65 shortly ahead of the closing bell, after having been up at $17.00 toward the end of the prior week.

IGT’s low for the day was $13.48, and its 52-week range is $13.33 to $31.00.

Two quotes from last week’s earnings release and guidance have been included below. Neither one of them really sums up the drop but are meant to show what the guidance range and overall trends are being communited as.

Marco Sala, CEO of IGT, said:

Our 2018 results are in line with the improved outlook we provided in October. The year was characterized by strong global Lottery performance, resilience in Italy, and progress in North America Gaming. We’ve established solid foundations to build on – securing large, long-term Lottery contracts in key markets and executing a full refresh of our gaming machine cabinet and content portfolio. These efforts will translate into improved free cash flow beginning in 2019.

Alberto Fornaro, CFO of IGT, said:

We achieved 4% Adjusted EBITDA growth on stable revenue at constant currency and scope in 2018. We managed our net debt effectively, while making large upfront payments for a key Lottery license in Italy, investing in long-term North America Lottery contracts, and returning capital to shareholders through dividends. Our outlook for 2019 Adjusted EBITDA of $1.70-$1.76 billion assumes underlying growth for our core Lottery and Gaming businesses.

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