IGT Stock is Underappreciated Story, Argues Stifel Analyst
International Game Technology (NYSE:IGT) is upward 45.22 year-to-date. But even with that impressive showing, I analyst says the buy in is underappreciated.
In a note to clients today, Stifel psychoanalyst Jeffrey Stantial initiates reportage of the lottery services provider and expansion slot political machine manufacturer with a “buy” rating and a $43 terms target. That implies upside of almost 75 percent from the Dec. 16 close.
At its core, we sight IGT as a lottery business, trading at a gaming multiple, with limited credit for an accelerating magnetic core growing algorithmic program and improved balance sheet,” says Stantial. “While skeptics would indicate a conglomerate price reduction could remain inwards absence seizure of collective actions, we see plenteous catalysts to facilitate secretive the breach to lottery peers.”
The thesis that IGT buy in is receiving a empire price reduction isn’t unreasonable. Lottery assets are immediate payment generators and worthy inward the investiture community, but often don’t get replete(p) credit entry when the parent keep company has other lines of business.
A ground illustration of that scenario is IGT’s competition Scientific Games (NASDAQ:SGMS), which unlocked shareholder economic value past parting with its SG Lottery business. In October, Scientific Games sold that unit to Brookfield Business Partners L-P (NYSE:BBU) for $6.05 billion, and in that location were other suitors, underscoring the attractiveness of lottery assets.
IGT Story Remains Compelling
It’s non sort out if IGT testament pursue a similar track as Scientific Games and jettison its drawing arm. But that building block is a world(a) leader and accounted for 74 percent of the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) inward 2019.
The worldwide gaming business, which includes slot political machine sales and leasing and gaming management, accounted for the remainder. The troupe is also actively working to lose weight its debt burden and bolster up cash in flow. With the stock up down pat(p) 18.33 percent over the past month, IGT could live offering the to the highest degree attractive entry points seen this year, and Stantial outlines a catalyst-rich story.
“IGT’s drawing concern remains deep discounted congenator to public and M&A comps, with several catalysts to re-rate,” he notes. “IGT looks well-positioned to vie crosswise most high-profile ontogeny opportunities (iGaming, sports betting, iLottery, cashless), while stream valuation portrays IGT as solely a low-growth legacy provider.”
The Stifel psychoanalyst adds expectations for the IGT gaming building block are “muted,” and that the fellowship should bring forth rich free cash stream for several years, which could keep the bring back of great to shareholders.
Corporate Action Possible?
In September, IGT proclaimed the creative activity of a dedicated digital and betting building block and that might not live full apprehended past the investment funds community, either.
“We value the hyper-growth Digital & Betting segment at 10.0x Adj. EBITDA, to a lower place the low-pitched final stage of most B2B online gaming peer multiples, reflecting our relatively conservativist views on the online gaming trajectory, linked with meaningful outstanding macro instruction risk,” adds Stantial.
The digital gaming and sports wagering build up testament follow structured as a unexampled entity. That dealing should live completed o'er the next year. It could eventually lead story to the business organisation being spun off from the parent company.