International Game Technology’s principal
activities are to design, develop, manufacture
and distribute a range of computerized gaming
products and systems. Products include traditional
spinning reel slot machines, video gaming
machines, government sponsored terminals and
other video gaming devices.
Two
segments are the focus: Gaming operations
and Product sales.
Gaming
operations include the development,
marketing and operation of wide area progressive
(WAP) systems, standalone games and gaming
equipment leasing.
Product
sales include the development, manufacturing,
marketing, distribution and sales of computerized
gaming products and systems.
We
like IGT because it operates in the United
States and other countries. IGT is well positioned
to take advantage of the global growth in
gaming due to its international reach now
representing 20% of its operating income versus
5% just 5 years ago.
IGT
maintains a large R&D budget.
We
believe IGT will be the pioneer in the server
based gaming replacement cycle, which should
begin to take form in calendar 2009, but the
stock should perform well in anticipation
of this.
New
Gaming in AVP Technology
IGT
showcased its new products in November of
2007 and server based gaming capabilities
at G2E in Las Vegas. This showcase demonstrated
IGT’s leadership role in the next replacement
cycle.
Product
sales in server-based gaming could begin to
take form in mid-calendar '09. IGT showcased
server-based gaming supported a complete line-up
of new platforms, and the newest versions
of some of their brand games such as Wheel
of Fortune Super Spin and Indiana Jones in
AVP technology.
Share
Repurchase. The return of capital
could significantly drive shareholder value
over the next several years.. IGT purchased
13.5mm shares in the Q for a total cost of
$506.9mm (avg. price of $37.47/share). This
represents a significant acceleration from
FY3Q repo of 6.4mm shares for $248.8mm (or
$38.88/share). There are 33.2mm shares remaining
on the company's buyback authorization. IGT
expects to complete the new authorization
over the next three years, but we believe
the company could exhaust the repurchase plan
sooner. IGT's balance sheet is under-leveraged
at a current net debt-to-EBITDA ratio of 1.1x.
IGT
Favored Based on Server Gaming
IGT
is our favorite while we believe these four
gaming companies have strong growth potential:
International Game Technology (IGT), MGM MIRAGE
(MGM), Las Vegas Sands (LVS), and Scientific
Games (SGMS).
IGT
has the strongest position in the server based
gaming replacement cycle.
MGM is a strong play as it develops into much
more than a gaming company and taps into high-end
hotel management and development.
LVS
brings almost $20 billion of development to
the table in Las Vegas, Macau, Singapore and
Pennsylvania.
SGMS
will likely further increase its footprint
in the global instant ticket and slot machine
markets.
