Cashing in on the Gaming Sector
As more states permit casino gambling the sale of slot machines and video poker machines will continue to grow.
See I'm riding my blues away
Tuesday, you see, she had to be free
But somehow I've got to carry on.."
-Tuesday's Gone by Lynyrd Skynyrd
Yes, once again Skynyrd makes its way into my writing. But on this rainy sixth anniversary of the darkest day that I can remember - this is the song that captures the mood today. My youngest son was born on Friday, September 7, 2001 and I planned to stay home the following week. So when my wife called out to me to "come see what was happening at the World Trade Center" everyone's life changing event was well under way.
It is incredible that six years have passed. There is no good segue here and it would be in poor taste to even attempt to make one.
So let's see if for one day, at least, I can play it straight.
Shuffle Master (SHFL) reported disappointing 3Q earnings yesterday afternoon after the bell. The stock was immediately sold off and the share price has now effectively been cut in half since the end of December 2006.
But I am still a believer in the gaming sector and I think there are still trades to be made. One of the names that is sticking out like a sore thumb is International Game Technology (IGT). According to its website, IGT "is a global company specializing in the design, development, manufacturing, distribution and sales of computerized gaming machines and systems products". From April 2005 to as recently as January of this year, IGT was a Wall Street darling, trading from $24 to $48 over that time period. But 2007 has been anything but kind to this gaming giant with the share price bottoming out around $34 in early August. But I think the worst may be over.
In Barron's Weekday Trader column on September 6, a rally of 30% over the next 12 to 18 months was deemed possible. And it looks like they may be on to something. At 23 times forward earnings IGT looks a tad rich. But on when compared to some of its peers in the gaming industry it is trading at about a 15% discount.
Years ago, I used to go out to Yonkers Raceway to wager on the trotters, Carmine Abbatiello being my personal favorite driver, due in no small part to his Italian heritage. But there was also Del Insko, Herve Filion and so many others that made Yonkers the place to be on a Saturday night in the summer. Things changed once the Meadowlands was built and the interest in harness racing diminished. But there has been somewhat of a rebirth at Yonkers Raceway and that is due, without question, to the addition of slot machines.
This is not an isolated trend and as more states permit casino gambling, the sale of slot machines and video poker machines will continue to grow. The same trends hold true in Asia.
Plus, on the balance sheet front, things are strong enough for IGT to authorize a 42 mln share stock repurchase program, which represents about 13% of its float. That should provide a bit of a floor for the foreseeable future. The stock feels like it is turning to me, but if you are looking for further clarity, IGT is scheduled to present at a Bank of America Investment Conference in San Francisco on September 19.
I like the story here at IGT and I am giving it two thumbs up, much like Carmine would do from the sulky as he drove by the crowd for another run around the mile and a half track. And this is for you, Kevin Depew - the winner, please, of the 1980 Cane Pace?
So while Pepe is chewing on that, take a look at International Game Technology, a growth story that is not going away anytime too soon.
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