International Game Technology (IGT) will release its first-quarter (December quarter) of fiscal 2010 earnings today after market close. IGT is a leading manufacturer, designer, producer and marketer of computerized casino gaming equipment, systems and devices worldwide.
The key goal for IGT in 2010 is to manage costs. Given the economic downturn and reduced demand for game play, revenue growth has suffered. Hence, IGT is focusing on reducing operational costs to improve earnings.
During the fourth-quarter, IGT started experiencing stabilized demand for its slot machines and casino management systems. The company plans to focus on its core activities in fiscal 2010. Management expects cost reduction throughout 2010. As a result, IGT expects the EPS to be in the range of 77 cents – 87 cents per share, including 6 cents per share of non-cash interest expense due to a change in accounting of convertible notes.
According to the Zacks Consensus estimate, IGT is expected to report 20 cents a share in earnings for the upcoming quarter, a decline of 9% year over year. For the full-year 2010, the Zacks Consensus Estimate calls for earnings of 88 cents a share. 1 out of 22 analysts covering the stock lowered estimates for the upcoming quarter and the full-year 2010 in the last 30 days. However, we believe that upside potential is limited, so we expect minimal price movement.
While spending has improved, the recovery in the leisure and gaming industry appears to be slow. Moreover, International Game remains significantly challenged by the tepid economic conditions, which is impacting its gaming business, resulting in a decline in domestic replacement and lower play levels (game revenue depends 85% on play levels), as well as a mix-shift to lower-yield standalone lease operation games in its installed base. Moreover, strong competition from Aristocrat Leisure Ltd., Bally Technologies (BYI) and WMS Industries Inc. (WMS) is a concern.
IGT’s fourth quarter earnings topped the Zacks Consensus Estimate. Ongoing cost-cutting initiatives, substantial free cash flow, increased international penetration, expansion of gaming operations into new U.S. jurisdictions and rapid replacement of new machines will drive growth over the long-term.
Based on the above reasons, we keep our Neutral rating on IGT, indicating that it should perform in line with the market. Our target price of $21.00 is based on a P/E multiple of 23.6X our 2010 EPS estimate, a discount to the peer group.
Read the full analyst report on “IGT”
Read the full analyst report on “BYI”
Read the full analyst report on “WMS”
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