WMS: THEY’RE STILL TOO OPTIMISTIC

Street estimates continue to look high to me. WMS probably should’ve lowered 2009 guidance in their FQ3 earnings release, but they didn’t. I don’t doubt the success of WMS’s new games but there aren’t many new casinos or expansions in the pipeline. Replacement demand won’t make up the difference. I know the sell side wants to get behind a growth story (11 out 16 ratings are buys), but the casinos (and their creditors) are not cooperating. EPS growth in 2H F2009 and full year F2010 may only be flat to up low single digits.

The first chart details our industry wide projections for slots sales into new casinos and expansions and the year over year change. From the data, it’s pretty difficult to walk away with the conclusion that WMS has a lot of near or intermediate term growth, even if they resume market share gains. The numbers are pulled from our database of every new casino and expansion opening in North America over the next 2 years. The September quarter of 2009 is the only quarter through the end of 2010 where there is a positive delta in domestic slots to new/expanded casinos.

The second chart provides the projected growth by the Street. Currently, the consensus EPS estimates for 2H F2009 and full year F2010 are $0.81 and $1.63, respectively, representing growth of 19% and 14%. Meanwhile, we project total domestic slot unit declines for the industry of 44% and 22%, respectively, over the same period. That’s with a 25% increase in projected replacement demand! As can be seen in the first chart, slot unit sales to new casinos and expansions will be down even more. WMS would need to grow its market share by 10 percentage points to 32% to hit the Street’s domestic unit sales estimate of 19,000 slots in F2010, based on our industry assumptions.

Clearly, there is a big disconnect between the two charts. Market share gains and replacement demand won’t be enough to bridge the gap.


Significantly negative growth in every quarter except Q3 2009
Hard to reconcile this chart with the one above

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