IGT: WILL ANYONE CARE ABOUT THE Q?

Our sense is that people want to own this group. BYI already let the cat out of the bag for the March and June quarters. Numbers would have to be awful for IGT to disappoint.

 

 

IGT is reporting its FQ2 this Thursday and we are expecting a miss.  In fact, we’ve been at $0.17 since IGT reported its FQ1.  Despite the Street’s current $0.20 estimate, real expectations are lower and therein lies the problem for any would be shorts.  Anyone who’s been listening to the company’s commentary and extrapolated from BYI’s pre-announcement knows that the near term earnings picture is cloudy at best.  Replacement demand is still sluggish, weak casino results negatively impacted gaming operations, and Alabama units have been offline for almost a whole quarter and will likely to remain so for the next few quarters. 

 

Not only is IGT probably not a great short into Thursday, it may actually see a relief rally.  Investors seem to want to own the slot guys.  The bad news for the group is short term and well known.  Judging from the muted reaction to a pretty nasty earnings revision by BYI, IGT will probably get another pass.  Forward commentary – beyond the June quarter – may be positive and discussion of a new Server Based Gaming contract with Cosmopolitan (See “IGT BAGS THE ELEPHANT?” from 4/14/10) could actually provide a positive catalyst.

 

Don’t get us wrong, we still think there are lots of booby traps with this name - primarily as it relates to share loss on the participation side, but that doesn’t mean that the name may not work for a trade – given the exuberance and momentum that is prevalent in this space.

 

We’re at $0.17 cents vs. the Street at $0.20 and are projecting FY2010 EPS of $0.84 vs. consensus of $0.91 (despite company guidance of $0.77-$0.87). Below are some details behind our estimates.

 

F2Q2010 DETAIL:

We are forecasting product revenue of $205.7MM and 52% gross margins

  • $124MM of NA product sales producing a gross profit of $67MM 
    • We are projecting 4.6k of units sales, with 3,250 replacements, 1,250 new units (including recognition of deferred units) at an ASP of $15.3k  
    • We estimate that NA non-box sales of $53MM, but don’t have any ‘edge’ on forecasting this number since it includes systems, conversions kits, used parts and ‘other stuff’ 
  • $82MM of international product sales producing a gross profit of $39.5MM 
    • International units of 6.2k –with 3k of those shipments from lower priced Barcrest units, thereby lowering the sequential ASP to $9.7k since Barcrest machines sell for roughly $4k. 
    • Non-box sales of $22MM- again – no real ‘edge’ here

Gaming operations revenue of $277.5MM with a 61% gross margin

  • We estimate 350 incremental installs, sequentially
  • Yield decline of 7% y-o-y

 

Other Stuff:

  • SG&A of $93.5MM, including $3.5MM of provision for bad debts – we’re below the company’s guidance of $95-100MM ‘run rate’
  • R&D of $51MM in-line with guidance of “low $50MM range”
  • D&A flat sequentially
  • Net interest expense of $30MM
  • Tax rate of 38%
  • While we don’t model these, we do expect charges related to the closure of IGT’s Japan operations.  The company guided up to $20MM of charges for the 2nd and 3rd quarters of FY2010.  

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more