The title of Scientific Games has been pinched by the degradation, an analyst raises its price target

Posted: Nov 3, 2021, 10:05 a.m.

Last update on: November 3, 2021, 12:05 p.m.

After a breakneck pace that has seen the slot maker shares nearly double this year, Scientific Games (NASDAQ: SGMS) shares are facing a decline today.

Stock of science games
The Scientific Games booth seen at the annual G2E conference in Vegas. Analysts still like the business for the long haul, but some believe the once-hot stock may cool. (Picture: Las Vegas Review)

In a note to customers, Stifel analyst Jeffrey Stantial downgrades his rating on the gaming technology company to “hold” versus “buy”. But he is raising his target for the stock price to $ 90 from $ 84. That implies a rise of more than nine percent from the Nov. 2 close and is well above the consensus price forecast of $ 81.44. With asset sales on hold, the analyst considers that this catalyst is not possible.

We believe that the creation of value induced by the sale of assets has played a large part, the attention of investors now shifting to the long-term thesis where the still significant execution risk outweighs our enthusiasm for this management team and their well-illustrated RemainCo growth strategy ”, said Stantial.

In June, Las Vegas-based Scientific Games said that as part of its debt reduction efforts, it would sell its OpenBet sports betting platform and SG lottery unit. Endeavor Group Holdings, Inc. (NYSE: EDR), the parent company of the Ultimate Fighting Championship (UFC), announced in late September that it had acquired OpenBet for $ 1.2 billion in cash and shares. Last week, Brookfield Business Partners LP (NYSE: BBU) announced the purchase of SG Lottery for up to $ 6.05 billion.

Stock of science games: on the sidelines for the moment

Over the past six months, Scientific Games has grown 49.39%. But shares are down nearly 6.6% following the announcement of the SG Lottery unit, indicating that investors are awaiting the company’s next act.

“As such, despite our positive view of the long-term trajectory of the company, we feel more comfortable on the sidelines for the time being, waiting for the impact points of the new strategy / team. manifest in the results. ” said Stantial of Stifel.

Over the past two years or so, Scientific Games has transformed, reconfiguring its leadership team while trying to become a more agile, digitally-driven company with reduced debt burden. The aforementioned asset disposals contribute to these objectives. Removing companies that don’t fit in with its digital efforts could help Scientific Games avoid the dreaded valuation discounts that previously plagued gaming tech companies.

“We have argued for years that many if not all of the very diverse gaming technology vendors have experienced a long-standing conglomerate rebate. This view is validated by the robust multiples received for sports betting and lottery activities, with a still healthy multiple of around 11x currently attributed to “new science games,” adds the Stifel analyst.

Next for science games

Earlier today, Scientific Games announced the acquisition of Authentic Gaming, marking the buyer’s first foray into the live casino market. This segment represents 30% of global iGaming revenues. Financial terms of the deal were not disclosed. Authentic’s customers include 888 Holdings, Entain, and LeoVegas, among others.

In addition, Scientific Games is trying to acquire the 19% of social casino developer SciPlay Corp. (NASDAQ: SCPL) which it does not already own.

The suitor made an offer with an 11% premium in mid-July, and the target is considering the offer. But it has been several months since either party publicly commented on the matter. The return of SciPlay internally is important to Scientific Games’ efforts to strengthen its online presence.