IGT gets rave review in investor note

September 23, 2021 2:39 PM
  • David McKee, CDC Gaming Reports
September 23, 2021 2:39 PM
  • David McKee, CDC Gaming Reports

Conjuring up images of Willie Wonka, Credit Suisse analyst Benjamin Chaiken dubbed International Game Technology (IGT) a “golden ticket” today in an investor note.

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Although IGT is active in multiple aspects of the game-supplier industry, for Chaiken it boiled down to one word: lotteries. The latter account for 80 percent of IGT’s cash flow, especially during the continuing pandemic, when many players have turned to non-casino gambling. Noting that the lottery segment is high-margin, Chaiken wrote, “The company has a more clear streamlined reporting style, and expectations in gaming have reset with an argument for potential upside.”

The Credit Suisse observer further pointed out that lotteries are resilient and have even gained traction, while the rest of the industry swooned from the pandemic, adding that 2022 might be better still.

“We think lottery may have taken a step higher in popularity from increased play over COVID-19, making the ‘high-water mark’ from the pandemic simply a new baseline, which is not the expectation,” penned Chaiken. He pointed to a “largely unnoticed” Scientific Games filing with regard to the spinoff of its lottery division, which pegged lottery earnings 17 percent higher than Wall Street estimates, which model for a 5 percent decline in lottery sales next year.

Chaiken, who placed an “outperform” rating on IGT stock, said that such bullishness was in line with improved Wall Street sentiment toward the company. He added that Scientific’s lottery business trades at 14 to 15 times cash flow, while IGT’s is only seven times 2022 cash flow. “Applying a mid-teens multiple on IGT would yield a >$70 stock, vs. $21/share today,” he wrote.

Looking ahead to November’s IGT investor day, Chaiken wrote that he expected the company to report that it is converting as much as 45 percent of its earnings before taxes, interest, depreciation and amortization (EBITDA) to free cash flow, always a favorable sign. His price target for the stock is a year-end $36 per share.