International Game Technology (NYSE:IGT) used to dominate the market for selling slot machines and related gaming machines. A couple of smaller, more nimble competitors have steadily eaten into its lead, but IGT still remains the largest player in the industry. A couple of favorable tailwinds are emerging in the domestic gambling space, and could help IGT boost its growth to levels not seen for several years now.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Company Overview
International Game Technology sells gambling games to casinos across the world. These best qualify as slot machines, but these days include a wide array of games that are hooked up to a central server that can be quickly updated and tracked to keep the action going. These include video reel, spinning reel and video poker games based on popular shows such as American Idol, Wheel of Fortune and Sex and the City, and films such as Ghostbusters. As of the end of last year, IGT boasted an installed base of nearly 54,000 units. North America accounts for the vast majority of sales and represented 76% of 2011 revenues of nearly $2 billion.

SEE: The Evolution Of The Gaming Market

Recent Results and Outlook
IGT recently reported third quarter results. Total revenues advanced a healthy 9% to $533 million. Its gaming operations comprised 56.5% of the total top line and grew nearly 13%. This unit consists of providing gaming devices to casino operators such as MGM Resorts (NYSE:MGM), Boyd Gaming (NYSE:BYD) and Caesars (Nasdaq:CZR), with 81% made up of variable revenue where IGT gets a percentage of the wagers gamblers place on its machines. The rest is made up of the sale of gaming equipment, parts and related services. This unit grew a much more modest 4.5%.

Despite the strong sales growth, net income was nearly cut in half to $46.6 million, or 16 cents per diluted share. Acquisition charges of $26 million accounted for most of the drop and management estimated recurring earnings fell by a much more modest 12% to 23 cents per diluted share. For the full year, IGT estimates adjusted earnings of between 98 cents and $1.04 per share. Analysts currently project sales growth above 7% and total sales of $2.1 billion.

SEE: How To Decode A Company's Earnings Reports

The Bottom Line
With a majority of sales close to home, IGT is going to be influenced by local gambling demand trends. The economic downturn proved that the gaming industry is cyclical and Las Vegas saw a significant drop in gambling volume and tourism. Gamblers are returning slowly, but there is solid upside, as local and state governments across the United States are turning to opening casinos to create jobs and shore up their tax bases. IGT has also aggressively beefed up its online gaming operations and could benefit greatly if gambling via the Internet is legalized by state or the federal government.

There is also potential for more international exposure. Asia represents the fastest growing region and Macao, a special region designated for gambling in China, is now the largest gambling town in the world. IGT has seen increased competition in recent years from archrivals Bally Technologies (NYSE:BYI) and WMS Industries (NYSE:WMS), but is still larger than these two firms combined.

SEE: Top 6 Factors That Drive Investment In China

Operational upside exists as new casinos open domestically. IGT also trades at a very reasonable forward earnings multiple of just over 11. It also sports a decent current dividend yield of 2.2%. The company has significantly ramped up debt to support its dividend and buy back stock, but for now has been easily able to cover its interest expense with operating earnings. Free cash flow production has also been solid and close to reported net income.

At the time of writing, Ryan C. Fuhrmann did not own shares in any company mentioned in this article.

Related Articles
  1. Investing

    Redefining the Stop-Loss

    Using Stop-losses for trading doesn’t mean ‘losing money’, but instead think about the money you'll start saving once you learn how they work.
  2. Fundamental Analysis

    10 Major Companies Tied to the Apple Supply Chain

    Apple has one of the best supply-chain models. Here are some of the top businesses involved, and the benefits and challenges for all.
  3. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  5. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  6. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  7. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  8. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  9. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  10. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!