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.
Scientific Games Corporation (SGMS): Read the Full
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