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The stock has been a laggard but better near-term trends, investor friendly cash deployment, and some international visibility may quickly narrow the performance gap.

IGT’s belief that they can drive their international market share from 15% to 30% over the next several years certainly raises eyebrows.  Considering that the international slot base is 50% larger and growing twice as fast as North America, that would be a very lucrative accomplishment.  We’ll remain a bit skeptical on the 30% but we do think evidence will emerge this year and this quarter to show that IGT is making progress.  Incremental sales will leverage an already beefed up sales and content infrastructure.  In other words, the cost infrastructure needed to drive significant growth in international sales is already hitting the P&L.

International growth is not the only catalyst, however.  IGT’s recent large investments in the online gaming space have investors worried about ROIC.  We think management is done making large acquisitions for a while which means their sizable free cash flow needs to be invested elsewhere.  Aggressive and accretive stock buybacks are the most likely vehicle for returning cash to shareholders.  Ultimately, we expect the company to raise its dividend modestly and potentially accretively take out the convertible.  Management appears happy with its current leverage.

IGT trades at 13x our fiscal 2013 EPS estimate, yet EPS growth could be 20% for a few years.  The story is coming together and is getting out there.  Management is meeting with investors in Boston and New York this week and a big investor conference is being held in Las Vegas next week.  We think incremental investors may be persuaded by more prudent cash flow deployment going forward (read: buyback) and the progress being made toward the company’s lofty international goals.