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Shuffle Master Back on Track

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The move to a lease model may be saving the day at Shuffle Master (Nasdaq: SHFL  ) . After years of turmoil and the stock being crushed from highs near $40 per share in 2006, it appears revenue and earnings have steadied because of a move away from sales and toward leasing.

Revenue was up 14% from last year and lease revenue accounted for 47% of the total. This growth was in contrast to falling revenues at Bally Technologies (NYSE: BYI  ) and International Game Technology (NYSE: IGT  ) , which were both hurt by longer replacement cycles in the United States. Those who have watched Shuffle Master for a while will also be pleased to see a 25% reduction in net debt, which once nearly strangled the company after a series of ill-timed acquisitions.

The quarter could have been better, but higher stock-based compensation and a high sales expense because of higher-than-expected sales were a drag on the bottom line. Still adjusted EPS of $0.13 was a penny higher than estimates, and revenue of $51.5 million beat estimates by nearly $2 million. This outperformance was partly because of Pennsylvania and Delaware allowing table games during a quarterly one-time event.

Overall performance was positive for Shuffle Master, especially given the weak economic environment. Given an innovative new line of i-Tables and continued traction in leasing, I see Shuffle Master being a consistent performer in the gaming supply business. I don't expect any sort of blowout performance given current gaming trends and a P/E ratio around 19, but after a rocky three years for the stock, shareholders might appreciate consistency and a lower debt load.

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Fool contributor Travis Hoium does not own any company mentioned here. The Fool owns shares of Bally Technologies. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

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