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    MARKET EDGES

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Stealing market share can take you only so far. We expect North American slot sales to fall around 50% in the first half of calendar 2009. Yet, the sell side currently projects WMS to grow its revenue 9% year over year in 1H CY2009 (2H FY2009). That would be quite a heist, especially now that the gorilla that is IGT is beginning to flex its muscles. IGT will likely be using its balance sheet more aggressively in the financing area to “buy” some business. Wait until they flex on pricing.
  • From our posts over the past few days it is pretty clear we don’t think WMS will make the Street numbers for 1H CY2009. The December quarter looks very good for the company and we actually expect upside to consensus. As part of their FQ2 release, however, WMS will have to address guidance for the remainder of its fiscal year and we don’t think it will be pretty.
  • So what does this do to the stock? This isn’t like a casino operator lowering guidance, AGAIN. WMS has raised or affirmed annual guidance for 10 straight quarters including raising guidance in 4 of those quarters. That is quite a track record and management deserves kudos. However, this consistency has set the stage for a major disappointment. WMS could become a victim of its own success.
  • The analysts love the stock. Indeed, 13 out of 15 ratings are buy. Downgrades are more likely than upgrades. Yes, the stock is down 45% on the year which, on the surface, appears to be washed out, until you compare it to the sector. IGT and BYI are down 82% and 70%, respectively. The gaming operators are down even more.

    The more they are loved, the farther they can fall.

With such an impressive track record comes high expectations
Analyst groupthink