Earlier this month, the global gaming giant, International Game Technology (IGT), unveiled its strategic plan to reassess its global gaming and PlayDigital units. This move has been met with positive responses from both analysts and investors.
IGT’s headquarters, located in Providence, R.I., has seen a surge in its price target following the announcement of the potential divestment of two of its units. Stifel analyst, Jeffrey Stantial, maintains a “buy” rating on IGT and has increased his price target for the stock from $32 to $38. This suggests a potential upside of 25% from the closing price on June 23. The company is considering various options for these businesses, including a merger, sale, or spin-off. However, analysts predict that a sale or spin-off is the most probable outcome.
Stantial’s analysis reveals that there is a broader range of potential buyers than initially anticipated. The potential for margin expansion in Global Gaming and the positioning for the rapidly growing iCasino content opportunity make IGT an appealing target for both financial and strategic buyers.
If IGT decides to divest its global gaming and PlayDigital units, the resulting company would be a standalone lottery entity. Stantial suggests that this could lead to a “re-rate higher.”
IGT’s Timely Consideration of Spin-Offs
In November 2021, IGT expressed its willingness to consider a spin-off of its iGaming and sports wagering unit. However, action on this front was limited until this month. For a long time, analysts and investors have speculated about when the company would consider separating its global gaming business to allow its highly profitable lottery arm to gain more recognition in the investment community. Until recently, IGT’s board and management team were hesitant to explore such a transaction. However, it seems that their perspective has changed.
Stantial highlights the recent transition in leadership, with current CEO, Vince Sadusky, bringing a fresh perspective to the business, largely informed by his experience outside the gaming industry. Similarly, former CEO Marco Sala is expected to bring a new perspective to IGT’s largest shareholder, De Agostini, after transitioning to CEO of the company. De Agostini currently holds approximately 62% voting power.
If the company decides to divest the global gaming and PlayDigital units, its lottery business, which accounts for 75% of pro-forma earnings, may finally receive the recognition it deserves from investors.
Potential Suitors for IGT’s Global Gaming Unit
Although IGT has not officially announced whether the aforementioned segments will be sold or spun off, there is a possibility that the global gaming unit could be sold. This is because the business is improving and could attract a variety of suitors with attractive offers.
Over the past few years, IGT has streamlined its business by selling non-core assets, resulting in cost savings of over $210 million. With casinos upgrading slot machines, the business could be attractive to potential buyers. IGT is one of the top three slot manufacturers in North America by market share.
Stantial concludes that IGT’s market-leading share for VLTs and bartops has proven to be more resilient than initially feared following competitive launches. The competition in the North American slot market is as fierce as ever, with strong products from most major suppliers. However, it seems evident that IGT has at least stabilized its market share after approximately 1.5 decades of decline, and there are even some reasons to be optimistic about further share gains in the coming years.