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Why International Game Technology Is Losing Today

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of International Game Technology (NYSE: IGT  ) sank 5% today after Deutsche Bank downgraded the gaming equipment maker from buy to hold.

So what: Despite the downgrade, analyst Carlo Santarelli reiterated his price target of $22 per share, representing about 6% worth of upside to yesterday's close. While Santarelli doesn't exactly hate IGT's prospects, he believes that industry headwinds -- particularly in the gaming operations segment -- may limit the stock's multiple expansion, suggesting that IGT's growth potential is already baked into the price.

Now what: I'd expect the stock to remain pressured in the short run. "At this stage, we see a largely balanced risk-reward," Santarelli said, "but believe industry challenges will curtail the multiple expansion story and we struggle to see F14 EPS estimates going higher from here." Given that IGT shares are still up about 60% from its 52-week lows and trading at a P/E of about 20, I'd agree with Deutsche's view that the margin of safety could be a bit wider before jumping in. 

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Related Tickers

9/23/2016 4:02 PM
IGT $24.75 Up +0.11 +0.45%
International Game… CAPS Rating: ****