DB upgrades IGT ahead of Thursday’s analyst day
We take some flak for being critical of some of our competitors' research but we try to limit our criticism to times when we think it could affect a stock price and we disagree. It’s only fair, however, that we give credit where credit is due. We agree with DB’s upgrade of IGT. It probably comes as no surprise to our clients as we’ve been consistently positive on the stock since our management visit and 10/1/12 post “IGT: IMPROVING 2013 EARNINGS VISIBILITY."
Here are the DB thesis points that we agree on (5 out of 6):
1) accelerating earnings and beatable Consensus numbers, which has historically correlated strongly with stock price performance
2) real free cash flow relative to peers which allows for accretive buybacks
4) two years of solid expansion demand which is likely to curb “earnings cliff” fears that center around F2014
5) a relatively free option on expansion in the social gaming segment
6) a historically inexpensive valuation and inexpensive valuation relative to peers despite the most stable outlook and most ample liquidity
To be fair, we are less confident on thesis point #3:
3) a gaming ops yield inflection in the F2H13 which should curb the primary bear case in the stock
We think gaming ops yield could stabilize but wouldn’t go so far as call it an inflection point. Yield is still at risk but this is well-known so even stabilizing yield would probably be good for the stock.