Scientific Games Corporation (SGMS): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


Scientific Games reported dismal second-quarter 2014 results, with a wider year over year loss. However, revenues were inline with the Zacks Consensus Estimate. The sluggish macroeconomic environment is expected to persist for the remaining of FY14, which will hurt company's results. We believe that the expanded product portfolio that resulted from the acquisitions of WMS and Bally Technologies will boost top line growth. Moreover, acquisition of Bally Technologies will lower competition, thereby expanding its market share. However, we believe that the acquisition will put its balance sheet under further pressure as the company has opted for debt-financing. Moreover, pricing pressure due to slow demand and stiff competition remains a concern. Nevertheless, we believe that the back-to-back acquisitions of WMS and Bally Technologies improves Scientific Games overall growth prospect over the long term. Thus, we upgrade our recommendation from Underperform to Neutral and set a price target of $14.00.


Based in New York City and incorporated in 1984, Scientific Games Corporation is a global information technology (IT) systems and services company. The company provides instant ticket and online lottery products as well as systems and services to lottery authorities and gaming markets worldwide.

Scientific Games reported revenues of $1.1 billion in fiscal 2013. The company earned 49% of its revenues from outside the United States. The company operates its business under three operating segments Instant Products (48.5% of total revenue in fiscal 2013), Lottery Systems (24% of total revenue in fiscal 2013) and Gaming (27.5% of total revenue in fiscal 2013).

The Instant Products group sells instant lottery tickets and related services such as designing and manufacturing of tickets and paper-based prepaid phone cards to approximately 50 countries. Scientific Games is a leading provider of instant lottery tickets and its customers include 41 of the 44 U.S. jurisdictions that currently sell instant lottery tickets. Other value-added services provided by the segment include game design, sales and marketing support, specialty games and promotions, inventory management, and warehousing and fulfillment services.

The Lottery Systems group comprises the online lottery business. The group provides customized computer software, equipment and data communication services to government-sponsored and privately operated lotteries. The company operates online lottery systems in 11 of the 45 U.S. jurisdictions that allow online lotteries to operate, making it the second largest online lottery provider in the United States. Moreover, the company provides video lottery central monitoring and control systems and networks primarily to lotteries and gaming regulators. It also offers software, hardware and support to sports betting systems.

The Gaming group provides services and systems to private and public operators in the wide-area gaming industry, including server-based gaming machines and sports betting systems and services. Scientific Games also offers ancillary services to the industry, such as remote management of game content and management information, wagering terminals, central computer systems, data communication and field support services.

Scientific Games faces significant competition in most of its operating markets. The competitors include Pollard Banknote Limited, GTECH, Intralot Technologies, Inspired Gaming Group Limited, International Game Technology, Bally Technologies and Lottomatica to name a few.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: IT , SGMS

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