The stock of slot-machine maker International Game Technology Plc (IGT) remains a “buy” but expect earnings growth to slow in the second half of this year.
That is the view of brokerage Union Gaming Securities LLC in a research note issued from Las Vegas, Nevada, in the United States on Friday. The institution said it had cut its forecasts of IGT’s earnings before interest, tax, depreciation and amortisation (EBITDA) for the third quarter to US$406.8 million from US$436.4 million, and for the fourth quarter to US$454.7 million from US$463.7 million.
The reductions mean the Union Gaming forecast of IGT EBITDA for all of this year is now US$1.74 billion, still within the stockbroker’s previous forecast of annual EBITDA in the range of US$1.7 billion to US$1.78 billion.
Union Gaming lowered its price target for IGT stock to US$22 and kept its ‘buy’ rating. There could be a 23-percent upside for the New York-listed stock, said the note by analyst John DeCree.
“Even with lower estimates and less onerous target multiples, we see more than 20 percent upside in the shares,” it stated.
“We agree the sector warranted a rerating after sustaining record-high valuations for several months, but we believe the pendulum swung too far in the other direction. Shares of IGT are currently trading at about 6.5 times our 2018 EBITDA estimate of US$1.74 billion.”
The brokerage has reduced next year’s EBITDA forecast to less than US$1.77 billion from just over US$1.78 billion.
Its memo said public policy meant to curtail gambling in Italy had been a notable headwind for IGT. The government had made all advertising of gambling illegal and is increasing taxes on gaming machines.
The demand for replacement slot machines has also been interrupted by a market correction, the research said. “Much of the rerating started in Macau and Las Vegas and trickled down to regional gaming and the suppliers. While the [Las Vegas] Strip is a relatively small component of the overall slot industry, its health (along with Macau) does dictate the performance and investment decisions of some of the largest customers in the industry,” it says.
IGT reported an operating income of US$209 million for the three months ended June 30, up 8.9 percent in year-on-year terms. EBITDA for the period was US$441.8 million, up 4.2 percent compared to US$423.7 million in the same period a year earlier.
The company’s adjusted net income for the period was US$57 million from a net revenue that declined by almost 1.5 percent in year-on-year terms to about US$1.20 billion.
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Lionel Leong Vai Tac
Macau’s Secretary for Economy and Finance