On Feb 19, 2014, Zacks Investment Research downgraded International Game Technology (IGT) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
IGT reported disappointing first-quarter 2014 results, which missed the Zacks Consensus Estimate on both the lines. Earnings per share declined 13.4% from the year-ago quarter and 17.9% sequentially.
Revenues increased 2.1% year over year but declined 14.4% sequentially to $541.2 million. Operating margin contracted 300 basis points (bps) from the year-ago quarter and 50 bps from the previous quarter to 22.9%, due to higher operating expenses.
Double Down was one of the top-playing social gaming apps on Facebook (FB) at the end of 2013.
IGT noted that declining gross gaming revenue trends mostly in the gaming operations will continue to remain a major headwind in 2014. For fiscal 2014, IGT expects earnings to be at the lower-end of the guided range of $1.28 to $1.38 per share.
IGT’s weak outlook will remain an overhang on the stock, going forward. We believe increasing investment in product development will increase operating costs. This will negatively impact profitability in the near term.
Double Down is expected to grow strongly due to improving customer engagement, higher mobile revenues, international expansion and innovative product pipeline. Management also noted that Asia is well positioned to grow over the next 2–3 years.
Estimate Revisions
The Zacks Consensus Estimate for IGT’s second-quarter 2014 declined 6.5% (couple of cents) to 29 cents over the last 60 days.
The Zacks Consensus Estimate for 2014 decreased 7.8% (10 cents) to $1.18 per share over the last 60 days. The Zacks Consensus Estimate for 2015 dropped 7.2% (10 cents) to $1.28 per share over the same period.
Other Stocks to Consider
Other players in the industry, which look attractive at current levels include Zynga Inc. (ZNGA) and Bally Technologies (BYI). Both the stocks sport a Zacks Rank #1 (Strong Buy).
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