Tickers in this Article: IGT, BYI, WMS, LVS, WYNN, MGM
Every company has to figure out that delicate balance between not messing up the key attributes that brought it success, while changing enough to stay relevant and find new sources of growth. In recent years, leading game technology and machine vendor International Game Technology (NYSE:IGT), seemed to get too entranced in new technologies, follow-on products and expansion, allowing rivals like Bally Technologies (NYSE:BYI) and WMS Industries (NYSE:WMS), to grab share on the casino floor. While this remains a competitive market and IGT is not such a cheap stock, it looks as though IGT may have fixed what ailed it and is ready for another growth spurt.

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A Good Close to the Year
For the first time in over a year, IGT was able to deliver year-on-year revenue growth to its shareholders. Revenue rose 14% this quarter, blowing away the average estimate and the high end of the range, as well. To add a little more perspective, this is the strongest result since the December quarter of 2009.

Growth was somewhat balanced. The company's gaming business saw 8% top-line growth, while the products business grew 20%, on a 38% surge in unit shipments. Interestingly, while state gaming revenue in the U.S. is not growing all that well (and Asian gaming is on fire), IGT's shipments were very strong in the domestic replacement market.

IGT also posted good profits. Gross margin eased off a point, but the company saw 18% growth in operating income. The gross margin decline was spread among both units, with the gaming operations hurt by an IP legal settlement and some jackpot funding costs. (For related reading, see A Look At Corporate Profit Margins.)

Still a Growth Market
Casinos like Las Vegas Sands (NYSE:LVS), Wynn Resorts (Nasdaq:WYNN) and MGM Resorts (NYSE:MGM) have had their challenges, especially in the U.S. market, but gaming remains a long-term growth market. Admittedly, people do not plan trips to Vegas or gaming resort destinations when the economy is weak, but gaming really doesn't seem to lose its appeal, no matter what the job situation is. At the same time, states need revenue and gaming produces revenue. Not much is said anymore about rolling back gaming in states that have it, and more and more states are looking to add or expand casino gaming, to fill budget gaps.

As much as there is ongoing domestic demand for casino games, that pales next to the growing demand in Asia. Macau continues to see eye-popping growth and relatively nearby countries, like Vietnam, Taiwan and Singapore, are maneuvering to get some of that business for themselves. As long as casinos are being built, that's a good thing for the big players like IGT, WMS and Bally, as well as smaller players like Konami and Aristocrat Leisure.

A New Dynamic for an Old Market
To its credit, IGT management realized that they had a problem with their customers and they have taken steps to fix it; now, after two years, it's paying off. Although IGT continues to explore opportunities in fields like casino management, mobile and online gaming, the reality is that casinos today don't care about gee-whiz innovations; they want and need products that make a difference on the floor.

To that end, IGT does not seem to be losing much share to WMS's new video poker machines and new branded games should drive traffic. Of course, there will be competitive responses; Bally's new Michael Jackson-themed games are likely to see a lot of demand, as well.

The Bottom Line
IGT has cleaned up its house, but that does not necessarily mean that the stock is ready to roll. It's not dangerously expensive, but neither is it impressively cheap. IGT has to re-accelerate its top-line growth to high single-digits to really work well from here and there is no shortage of cheap stocks today, to say nothing of alternative plays like casino/resort operators. All in all, IGT is not a terrible bet here today, but there are much better hands investors can play, instead. (For related reading, see 4 Reasons Not To Gamble On Casino Stocks.)

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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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