Gaming analyst bullish on slot makers

Jul 24, 2009 7:22 PM
Staff & Wire Reports | While most of the casino industry languishes in the economic downturn, the short-term future of the industry’s slot manufacturers is looking up.

Today, a Goldman Sachs analyst boosted the price targets of International Game Technology, WMS Industries Inc. and Bally Technologies Inc., citing recent earnings results, increased product replacements and new gaming legislation.

Analyst Steven Kent said he was pleased with IGT’s third-quarter earnings results released yesterday. The Reno-based maker of slot machines and casino management systems said Thursday that its profit dropped 39 percent to 22 cents per share, but the results managed to top the 18 cents-per-share estimate of analysts polled by Thomson Reuters.

"We believe the stock has additional upside due to its solid cost-cutting initiatives and redesigned game development process which should help to drive accelerated earnings growth," Kent wrote in a note to clients.

He maintained IGT’s "Buy" rating and lifted its price target to $25 from $20. IGT is the world’s largest manufacturer of slot machines and casino operating systems.

Kent anticipates WMS and Bally Technologies will be able to capitalize on a ramp-up in replacement sales sparked by increased competition.

Kent said casinos are not increasing the number of participation games on their floors, but rather becoming "more aggressive in changing out units once performance starts to drop."

Recent gaming legislation in some states – including Ohio which reached a deal to put video gaming machines in racetracks – will also help casino equipment suppliers as casinos and racetracks will be looking for manufacturers to get the gaming machines from.

Kent raised Waukegan, Illinois-based WMS’s price target to $40 from $34. He increased the price target of Las Vegas-based Bally Technologies to $39 from $31.