IGT Stock Tumbles Despite Solid 2022 Outlook

Posted on: March 1, 2022, 10:41h. 

Last updated on: March 1, 2022, 11:02h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Shares of International Game Technology (NYSE:IGT) are plunging Tuesday. That’s despite the slot machine manufacturer issuing first-quarter and full-year guidance that, at the high end of the ranges, exceeds consensus estimates.

IGT stock
IGT is known for the Wheel of Fortune slot machine, seen in the image above. The stock is sinking today after the company issued 2022 guidance that merely meets analysts’ expectations. (Image: FOX5 Vegas)

In midday trading, IGT stock is lower by 15.12 percent on volume that’s already more than triple the daily average. The company forecast revenue of $1 billion to $1.1 billion for the January through March period while estimating 2022 sales of $4.1 billion to $4.3 billion. Analysts are expecting revenue of $1.04 billion for the current quarter and $4.2 billion for the year. That 2022 outlook is in line with what the gaming company offered up last November.

In the October through December period, IGT earned nine cents a share on sales of $1.05 billion, while Wall Street was expecting earnings of 49 cents on revenue of $1.02 billion. At least one analyst says the company’s newly created, dedicated iGaming and sports wagering unit may have been the culprit for that miss.

The recently bifurcated Digital & Betting segment drove the miss to consensus, with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $9M -39 percent/-45 percent to our model/Consensus. Revenues of $42M were -10 percent/-15 percent, while segment margins of 21.4 percent were well below our/Street’s 31.9 percent/32.7 percent contracting meaningfully,” said Stifel analyst Jeffrey Stantial in a note to clients.

He rates IGT a “buy” with a $43 price target, implying upside of 40.5% from the Feb. 28 close.

Bright Spots in IGT Report

While the results from IGT’s digital gaming and sports betting unit, which could be spun-off in the future, underscore the rough and tumble road operators face to profitability in those industries, there were some positives in the company’s update.

For example, IGT said it slashed its debt burden by $1.4 billion in the final three months of 2021, driving net leverage to 3.5x — the lowest level in company history. That also means it achieved its 2022-end leverage target a year early.

Additionally, the lottery operator generated $1 billion in cash flow from operations and $770 million in free cash flow last year.

“Improving leverage to 3.5x a year ahead of schedule enables us to pursue a balanced capital allocation framework that supports investing for growth, continued debt reduction, and the reinstatement of capital returns through quarterly dividends and share repurchases,” said CFO Max Chiara.

IGT repurchased $40 million worth of its own shares during the fourth quarter.

Lottery Business Steady, Too

IGT’s often underappreciated lottery business, one of the largest of its kind, was again solid in the fourth quarter.

“Global Lottery was inline with expectations, with adjusted EBITDA of $336M coming in inline to our at-Consensus $336M. Net revenues of $687M were +6 percent/+4 percent to our model/Consensus, while margins of 48.9 percent were below our 52.3 percent and Street’s 50.6 percent likely reflecting mix shift as well as potential inflationary pressure,” adds Stantial.

Lottery assets are cash generators and desirable in the investment community, but often don’t get full credit when the parent company has other lines of business, as is the case with IGT.