Welcome to the Stock of the Day.
After the record-breaking Mega Millions jackpot, it has become clear that America has itchy palms once again. Consumer confidence is up, and a big question is whether this will translate into other forms of betting and gambling. Today, we’re going to dig into this and review International Game Technology (NYSE:IGT), which is responsible for manufacturing half of all slot machines in the United States.
Company Overview: With just under 40 years of experience in the business, IGT is known for being one of the largest manufacturers and sellers of gaming machines in the United States. As to be expected, the company is based in Las Vegas as well as Reno, Nevada, and also has offices across six continents. In addition to selling physical gaming systems and cabinets, the company is also working on products and services that would enable businesses to offer online poker. This is an important development because several state legislatures are currently reviewing measures to legalize online poker. The company employs 4,600 worldwide and brought in over $1.95 billion in sales in 2011.
Industry Breakdown: There are 41 companies in the Multimedia & Graphics Software industry. Of those, IGT actually ranks highly in terms of several fundamental variables.
First, the company is third-largest in terms of market cap, and its 1.5% dividend yield is second-highest in the industry. In addition, earnings growth is second-highest and the company’s Price/Earnings to growth ratio is third-highest. International Game Technology’s 19% return on equity is sixth highest in the industry.
Finally, both the company’s sales growth and long-term growth rate are ranked at no. 13 of all Multimedia & Graphics Software companies. IGT’s main competitors are Bally Technologies (NYSE:BYI), and WMS Industries (NYSE:WMS). Of those, International Game Technology has the highest operating margin and is in the middle of the pack in terms of gross margin and sales growth.
Earnings Buzz: This company next reports earnings after the closing bell on Tuesday, April 24. All-in-all, it is shaping up to be mediocre earnings announcement. Currently, analysts expect that the company will grow sales by 5.5% and that its bottom line will increase 8.7%. By comparison, the rest of the industry is headed towards over 292% earnings growth and the rest of the tech sector is forecast to grow earnings by 85%. Over the past three months, analysts have downwardly revised their earnings estimates by 7%. And, although the company has posted earnings surprises for three of the past four quarters, last quarter IGT missed estimates by 22.7%.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. This stock’s rating has vacillated quite a bit over the past 12 months. This time last year, IGT was an F-rated sell, but gradually improved to being a B-rated stock during fall 2011.
However, since then the stock has declined back to a C-rated hold. Currently, the company’s fundamentals are all over the map. While return on equity, operating margin growth and cash flow are strong, the company’s earning surprises track record is abysmal and there is plenty of room for improvement in terms of sales and earnings growth.
Interestingly enough, buying pressure for this stock is decent, which somewhat offsets the lackluster fundamental scores.
Bottom Line: IGT is a C-rated hold; the company needs to improve several of its fundamental metrics before this stock can be considered a buy.
Recommendation: Hold
Sound Off: What do you think about IGT? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook.
