Investors don’t need to romp slots to smasher jackpots, but they can welfare from vibrancy ascribed to gaming gimmick manufacturers International Game Technology (NYSE: IGT) and Light & Wonder (NASDAQ: LNW).
That’s the sentiment of B. Riley psychoanalyst David Bain who initiated insurance coverage of both stocks in notes to clients today. He started reporting of Light & Wonder with a “neutral” rating and a $57 cost target, implying downside from today’s closing handle at $61.84. He’s more constructive on IGT on which he has a “buy” ground level and cost object lens of $43, or 55.3% higher up where the shares unsympathetic today.
One of the reasons Bain is bullish on IGT is its highly profitable lottery unit. Light & Wonder sold its drawing stage business in belatedly 2021.
IGT’s lottery systems and solutions are used past 8 of the cover 10 largest lotteries globally,” wrote Bain. “The ordinary customer human relationship continuance is metric inwards decades, and IGT has been successful inward converting 100% of top out 10 incumbent rebids. Lottery is known for its significant size, revenant nature (IGT lottery revenue is ~90% recurring), and economical resiliency.”
He adds that many investors may live overlooking the maturation parting of the drawing equation, which includes a becalm influx of unexampled players, rising appetite for pricier scratchers and the rising iLottery industry.
IGT Trades At Surprising Discount
While casinos remain dedicated buyers of new slot machines and IGT is ace of the leaders in terms of North American market place deal inward the industry, its shares switch at a engross price reduction comparative to its peer group.
“Yet, IGT trades 20% at a lower place the cassino supplier equal average. The remaining ~4% of IGT’s business sector is digital mental object delivery, a high-growth, asset-light business organisation with comps averaging 9.8x. We trust real-time strength crosswise to each one of IGT’s categories will prompting a valuation re-rating past investors,” observed Bain.
Gaming accounts for 25% of IGT’s earnings before interest, taxes, depreciation and amortisation (EBITDA) and it’s also the company’s fastest-growing segment. IGT is the fellowship slow the famous Wheel of Fortune serial of expansion slot machines, but its slot portfolio expands swell beyond that title.
“We see several valuation scenarios with apiece yielding the same conclusion: IGT is undervalued. Even applying significant valuation discounts to IGT’s drawing and gaming businesses versus peers (despite strong setups for both divisions, inwards our opinion) results inwards a significantly higher stock up price,” said Bain.
Light & Wonder Evaluation
Bain acknowledges there are some points to same with Light & Wonder, including the company’s sizable de-leveraging story, which came past way of life of selling its drawing and sports betting businesses. Additionally, the unfluctuating is unity of leaders inwards North American slot market place share.
The analyst’s tepid “neutral” rating on the caudex appears to live the ensue of valuation and the potential demand for an acquisition to lift near-term EBITDA.
“LNW’s EV/EBITDA is 16% to a higher place the gambling casino supplier compeer average, and its 6% FCF relent compares to peers at 10%,” concluded Bain. “While we trust LNW’s business sector mix, product specialty depth, and warm direction livelihood a valuation premium to to the highest degree suppliers, our sum-of-the-parts valuation, which uses above-peer multiples to segment EBITDA, does non vindicate portion out damage upside from stream levels, particularly inward light source of sure risks.”
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