International Gaming Technology Rally Already Fading

With shares of International Gaming Technology (NYSE:IGT) trading at around $15.01, is IGT an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

International Gaming Technology beat Q1 EPS and revenue expectations. On an adjusted basis, EPS came in at $0.28 versus an expectation of $0.24. Revenue came in at $530.30 million versus an expectation of $524.40 million. Revenue was also much higher than the $445.50 million for Q1 last year. International Gaming Technology attributed a large part of the revenue gain to interactive and products sales, which offset a decline in gaming operations. Revenue gains also helped boost profit by more than 30 percent.

CEO Patti Heart is looking to build on the company’s momentum by distributing content more broadly and returning capital to shareholders. Guidance for 2013 was also reaffirmed, which is adjusted EPS between $1.20 and $1.30.

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Unfortunately, there is no obvious news as to why the stock’s rally faded so quickly today. All we can do is look at some important numbers to get a better idea of the big picture….

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for International Gaming Technology is weak. The balance sheet is also in negative territory. Both circumstances are normal for the industry, but that shouldn’t be used as an excuse.

Debt-To-Equity

Cash

Long-Term Debt

IGT

1.54

$348.40 Million

$1.85 Billion

BYI

3.23

$68.64 Million

$557.78 Million

WMS

0.10

$69.10 Million

$85.00 Million

 

T = Technicals on the Stock Chart Are Mixed

International Gaming Technology has performed poorly over a three-year time frame, but the past few months have been impressive. Year-to-date, International Gaming Technology has outperformed Bally Technologies (NYSE:BYI) and WMS Industries (NYSE:WMS). This is a very short timeframe, but it could signal a trend change. International Gaming Technology is also the only company of the three that pays a dividend. International Gaming Technology currently yields 1.90 percent.

1 Month

Year-To-Date

1 Year

3 Year

IGT

7.41%

7.41%

-7.41%

-22.73%

BYI

4.84%

6.62%

13.58%

8.19%

WMS

2.12%

-0.69%

-18.56%

-57.70%

 

At $15.01, International Gaming Technology is currently trading above all its averages.      

50-Day SMA

14.05

100-Day SMA

13.42

200-Day SMA

13.89

 

E = Earnings Have Been Inconsistent

Earnings had been improving since 2009, but dropped in 2012. However, 2012 saw the strongest revenue since 2008.

2008

2009

2010

2011

2012

Revenue ($)in billions

2.50

2.02

1.92

1.96

2.15

Diluted EPS ($)

1.05

0.43

0.62

0.94

0.85

 

We already know what happened this quarter. Now let’s take a look at previous quarters.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

539.80

445.50

541.20

532.80

631.20

Diluted EPS ($)

0.17

0.16

0.21

0.16

0.32

 

T = Trends Support the Industry

Online gaming is still in its early stages. While online gaming providers duke it out for the top spots, International Gaming Technology has the potential to provide its technologies to all those in play. The online gaming world might look impressive now, but there is a high probability that it will be a much larger industry 10 years from now.

Conclusion

International Gaming Technology is well-positioned for the future. This is a solid company with good margins, decent cash flow, and strong stock momentum over the past few months. A 1.90 yield doesn’t hurt, either. However, debt management needs improvement and competition is likely to increase.

Overall, International Gaming Technology is a long-term OUTPERFORM.

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