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Why Scientific Games' Shares Plunged 19% Wednesday

By Daniel Miller – Feb 19, 2020 at 12:26PM

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Fourth-quarter results show near-term uncertainty, but long-term potential.

What happened

Shares of Scientific Games (LNW 1.87%), a company offering gaming systems, content, and services for sports betting platforms, and lottery games, among other things, were plunging more than 19% Wednesday morning after disappointing fourth-quarter results.

So what

Fourth-quarter revenue was $863 million, a 2.6% decline compared with the prior year and below analysts' estimates of $895 million. Fourth-quarter earnings per share checked in with a $0.46 loss, and consolidated adjusted EBITDA also declined from the prior year to $328 million, driven by lower lottery and gaming adjusted EBITDA.

scratch off lottery ticket

Image source: Getty Images.

In a press release, CEO Barry Cottle said: "This past year, we made great strides in developing the best games, attracting industry leading talent, and improving our capital structure. I'm confident we have the right team in place to reach our goal to be the market leader across land-based gaming, lottery, sports and digital gaming driven by leading content and the platforms that enable play anywhere and anytime." 

Now what

This was a disappointing quarter, but there were two intriguing developments after the company released its fourth-quarter results: Two analysts lowered their price targets yet left a buy rating. Barry Jonas, SunTrust analyst, lowered his price target from $34 to $32, and Stifel analyst Brad Boyer moved his target from $37 to $30.

These price targets and today's 19% decline seem to acknowledge the company faces uncertainty in the near term, but also long-term potential surrounding the rise of sports gambling in the U.S. market and how Scientific Games could capitalize on such an opportunity. Management did take steps to reduce net debt and cash interest costs in 2019, but now the company needs to produce organic growth, or it won't take long for analysts and investors to lose patience. Investors should expect stock price volatility from Scientific Games, and if that's not for you, changing your approach is simple! 

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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