US gaming revenues still haven’t reached a definitive recovery phase and investors are worried. That worry spreads to suppliers and their gaming ops segments. BYI looks the most protected.
Which supplier should you own given the current casino environment? Well, that depends on your outlook. If you are looking for a V-shaped recovery in gaming spend, then WMS or IGT is your best bet. Close to 100% of WMS gaming operations revenue is on a variable revenue share basis, while for IGT it is 75%. However, IGT generates approximately 57% of its revenue from gaming operations and WMS only 40%. Thus, on a net basis, IGT has a higher exposure to casino variability at 43% versus 38%.
If you think casino revenue growth will stay sluggish/negative and potentially take a turn for the worse, then you short the operators and stay away from the suppliers. If you must own a supplier stock, then BYI is for you. BYI generates approximately 50% of its gaming operations revenue from fixed daily fee structures and 50% variable. Moreover, only 36% of its total revenues is derived from gaming operations so net exposure to casino revenue variability is only 18%.
Of course, should US gaming revenues take the plunge, the recent acceleration in replacement demand will be short-lived and operators will cut back. That will not benefit any equipment supplier. BYI would be relatively better off in that scenario and is probably the lower risk slot play.