IGT, PlayAGS Could Be Star Slots Stocks, Says Analyst

Posted on: March 28, 2023, 11:10h. 

Last updated on: March 28, 2023, 11:47h.

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

With casino traffic and consumer spending on gaming proving resilient, there’s a case for shares of slot machine manufacturers.

IGT
A bank of IGT’s popular Wheel of Fortune slots. An analyst is bullish on select slot stocks. (Image: TheStreet)

That’s the take of Macquarie analyst Chad Beynon, who in a new report to clients, highlights several well-known names in the industry, including International Game Technology (NYSE: IGT), Light & Wonder (NYSE: LNW), and PlayAGS (NYSE: AGS).

Suppliers, which largely have recurring business models, also feel confident in trends. 2022 industry replacement orders of ~70K were essentially flat vs 2019, which was a multi-year order record,” wrote the analyst. “Regarding iGaming content, legislation delays likely will hurt 2023 growth, but companies remain bullish for future opportunities.”

Las Vegas-based Light & Wonder (LNW) — which along with Aristocrat and IGT — ranks among the top three North American slot machine providers by market share. Those companies and others, such as PlayAGS, are benefiting from strong Las Vegas and regional casino visitation trends, as well as an ongoing slot upgrade cycle.

Investigating IGT Shares

IGT is the company behind the famous Wheel of Fortune series of slot machines. But there’s more to its investment story. That includes a dominant lottery business and potential growth opportunities in the iGaming and sports wagering spaces.

“As the world’s largest lottery operator, IGT continues to benefit from solid underlying demand, and management highlighted the historical resiliency of its lottery business. Given the appeal of lottery and its low cost for high entertainment value, management does not expect a major impact in a recession,” added Beynon.

Interestingly, some analysts previously opined that IGT’s lottery unit may not be getting the credit it deserves from investors. Part of the reason IGT’s lottery may be overlooked is because the company has other operations, making it a gaming conglomerate, of sorts.

The thesis that IGT stock is receiving a conglomerate discount isn’t unreasonable. 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.

PlayAGS Pertinent, Too

Up nearly 38% year to date, PlayAGS is already one of 2023’s stars among small-cap gaming names, and Beyon believes there’s more upside potential. He has a price target of $11 on the stock, implying upside of 57.14% from current levels.

The analyst noted that in a recent meeting with PlayAGS management, executives sounded an optimistic tone, citing robust multisegment demand, and no signs of sluggish consumer spending. Earlier this month, the Las Vegas-based slot maker revealed plans to lower leverage to a range of 3.25x to 3.75x, drawing praise from Wall Street.

“With ~70% of the business model recurring and domestic installed units in a solid place, AGS is well-positioned to build the business in ’23 from higher unit sales (we project unit sales growth in the high singles), continued premium installed placements, higher table revenue from the PaxS, and growth in interactive (new game content/deals),” concluded Beynon.