Stifel reaffirms Buy rating on International Game Tech stock

Stifel analysts are maintaining a Buy rating on International Game Tech (IGT) with a $20 price target, citing potential upside from cycle-normalized free cash flow exceeding $1.50 per share and anticipated capital returns from Gaming & Digital segments, despite recent first-quarter earnings falling short of expectations with adjusted EPS at $0.09 versus an expected $0.27 and a lowered full-year revenue guidance to $2.55 billion. The analysts acknowledge risks in new digital growth areas and high licensing fees, but remain optimistic, noting IGT management's confidence in Lotto contract return projections and the stock's current 5.5% dividend yield.

Analysis

Stifel analysts have maintained their Buy rating for International Game Technology (IGT) with a $20.00 price target, despite the stock trading at $14.53, near its 52-week low of $13.81, a level that offers a notable 5.5% dividend yield. This positive stance is rooted in IGT management's confidence in upholding return projections for a recently secured Lotto contract and expectations of stabilized earnings power, particularly from Gaming & Digital (G&D) segments, which could enhance capital returns. However, this contrasts with IGT's recent first-quarter performance, where adjusted earnings per share of $0.09 significantly missed the $0.27 consensus, and revenue of $583 million marked a 12% year-over-year decline, falling short of the $636.61 million anticipated. Consequently, IGT revised its full-year revenue guidance downward to approximately $2.55 billion, below both its previous outlook and the $2.573 billion analyst consensus, attributing the Q1 shortfall and flat North American core sales to lower U.S. multi-state jackpot activity, product sales timing, and broader macroeconomic factors. While acknowledging higher risks and uncertainties associated with new digital growth areas and high licensing fees, Stifel remains optimistic about IGT's prospects, driven by cycle-normalized free cash flow projections exceeding $1.50 per share and the anticipation of increased share repurchases following the current capital expenditure cycle. The company's liquidity appears healthy, with a current ratio of 2.48 and a track record of 11 consecutive years of dividend payments, although Stifel did adjust its price target for IGT down from $22.00 to $20.00, and external AI-driven analyses have not positioned IGT as a top pick.

Key Decisions for Investors

• Investors may find IGT's 5.5% dividend yield and Stifel's $20 price target appealing, especially with the stock near its 52-week low, but should weigh this against the company's recent earnings miss and lowered guidance.
• Diligent monitoring of IGT's execution on its Lotto contract projections and its ability to navigate the high-risk, high-reward new digital growth segments is crucial given these are pivotal to achieving management's optimistic outlook and Stifel's valuation.
• Consider the potential for a stock recovery driven by projected cycle-normalized free cash flow exceeding $1.50 per share and increased capital returns, against the persistent macroeconomic headwinds, the financial impact of high licensing fees, and the execution risks underscored by recent performance.