Hedgeye bought IGT in the firm’s virtual portfolio yesterday. Here’s why.
IGT is 9% below its year to date high and our macro/trading team thinks right here is a great entry point. The stock was added into the Hedgeye virtual portfolio yesterday at $17.00. They see short-term upside to $17.99 (TRADE line resistance) and downside to $16.61, suggesting a favorable near-term upside/downside ratio of +5.8%/-2.7%.
Our fundamental view matches up with the quantitative set up. Earnings estimates finally look conservative as IGT maintains a number of margin levers while we wait for the long term growth picture to come into focus. We think that could come sooner rather than later.
The inevitable acceleration of replacement demand will be the big catalyst and we may be seeing signs of that emerging. Both PENN and MGM made positive comments regarding slot purchases on their recent earnings conference calls. New markets will layer growth on top of the normalization of replacement demand. While new markets (international and domestic) should provide long term growth, the news flow should be positive as state legislatures try and solve the massive budget issues. Gaming has become a politically palatable solution as state revenues can be enhanced without raising taxes or cutting spending.
From a fundamental perspective, we think we are at the beginning of a 3-5 year bull slot cycle. Now, the near-term quantitative trading set up matches our enthusiasm for the long-term fundamentals.