Monday, March 14, 2005

Just doubled down on the slot king -- IGT

International Game Technology (IGT) has been weak of late. Analysts have been taking down estimates for their upcoming quarter and FY05 (ends 9/05) primarily due to slow domestic sales. The TITO replacement cycle is in the late innings. Also last week, two counties in FL voted on slots. The bill passed in Broward but was rejected in Miami-Dade. Finally, industry watchers have been talking about Aristocrat taking share from IGT on the pennies. Despite these negatives, I decided to "double down" on IGT at 28.37 last Friday. Here are the positives:

  1. Partnership with Sammy in Japan is progressing very well. See MRQ press release. Next Japanese release scheduled for June 2005. Note though that int'l margins are not as high as domestic.
  2. New games (Fort Knox, Star Wars) should be huge.
  3. MBG (according to SSB) has yet to go to cashless gaming. Could be a sizable order in the works.
  4. In F1Q, IGT repurchased 2 million shares. Probably more to come.
  5. Co. pays a decent dividend (1.6%). Because IGT generates prodigious amounts of FCF, dividend increases are likely in the future. Furthermore, I'd expect management to opportunistically continue to buy back shares at sub-$30 levels.
  6. After going back and forth with the Indians, Arnie should get 30k slots into California in FY06 (Jeffries)
  7. Passage in PN was huge. Possibility of 30-40k in slots in 2006-07.
  8. Macau is certainly in the news as a hot gaming destination, but currently most of the gamers play the tables. Slots are something to watch in the next 5 years.
  9. Management believes size of Russian market could grow from 200k-300k in the near term.
  10. Industry leader in R&D by far. Should lead the transition to server-based gaming in 2007 and beyond.

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