Scientific Games Earnings: An Early Look

Earnings season is winding down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Scientific Games (NASDAQ: SGMS  ) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

Scientific Games isn't a casino company, but it's intimately connected to the gambling industry, helping to create lottery games for state lotteries as well as slot machines and other gaming machines for industry players. Let's take an early look at what's been happening with Scientific Games over the past quarter, and what we're likely to see in its quarterly report on Monday.

Stats on Scientific Games

 

 

Analyst EPS Estimate

$0.05

Year-Ago EPS

($0.09)

Revenue Estimate

$237 million

Change From Year-Ago Revenue

(0.8%)

Earnings Beats in Past 4 Quarters

0

Source: Yahoo! Finance.

Will Scientific Games win big this quarter?
Analysts have been slightly pessimistic about Scientific Games over the past few months, cutting their consensus on earnings per share by a penny for the just-ended quarter, and by $0.02 for full-year 2013. The stock, though, has posted modest gains, rising about 7% since early December.

The big news for Scientific Games came in late January, when the company agreed to buy out rival WMS Industries (NYSE: WMS  ) for $1.5 billion in cash. Scientific Games hopes that the merger will help both businesses boost their profit margins, which have been extremely low recently. Yet, paying more than a 50% premium to where WMS traded before the announcement, Scientific Games will need the transaction to pay off in order to justify the high cost.

But the bigger challenge that Scientific Games faces is staying relevant as the push toward online gaming picks up steam. Already, International Game Technology (NYSE: IGT  ) and Bally Technologies have gotten online gaming licenses in Nevada and, with the recent authorization of a decade-long trial period for online gaming in New Jersey, Caesars Entertainment (NASDAQ: CZR  ) and Boyd Gaming (NYSE: BYD  ) will likely be looking to get into the space, as well. If Scientific Games can provide the infrastructure for casino companies' online-gaming efforts, then it could be a huge opportunity; but otherwise, Scientific Games could get left out of the trend.

In its quarterly report, watch for further discussion about the status of the WMS merger, and how the unified company expects to proceed going forward. In a rapidly evolving gaming industry, Scientific Games needs to demonstrate that it's keeping up with the times in order to avoid getting left behind.

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