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Why Scientific Games Is Jumping This Week

By Rich Duprey – Sep 16, 2021 at 4:02PM

Key Points

  • The lottery business is forecast to produce revenue and adjusted EBITDA ahead of expectations.
  • The muscular growth expected ought to earn the business a sizable multiple relative to rivals.
  • Scientific Games was releasing the information to certain interested buyers.

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The lottery business it's looking to divest has robust growth potential.

What happened

Shares of Scientific Games (LNW 0.48%) are soaring 10.7% this week after the gaming and lottery technology leader publicized metrics related to the lottery business it's considering for divestiture.

So what

While the decision to divest the SG Lottery business has been known for some time, the metrics Scientific Games released Tuesday surrounding projected revenue growth and adjusted EBITDA were ahead of analyst expectations.

Two people cheering while looking at their phones.

Image source: Getty Images.

The gaming technology specialist said the segment's revenue is forecast to grow at a two-year compounded annual growth rate of 13.6% to fiscal 2022. Instant lottery participation-based revenue growth is estimated to be 14% in the U.S. and 23% internationally for fiscal 2021, while revenue growth of instant lottery price per thousand tickets is estimated to be 28% internationally for the year. Italy alone will be responsible for 36% of the European revenue growth that will be recorded.

North America provided approximately 73% of revenue in fiscal 2020 while Europe represented 24%. Adjusted EBITDA is forecast to rise 31% in fiscal 2021 though slow to 7% in fiscal 2022.

Now what

The information was being disclosed to potential buyers of the business, and because of the outperformance the unit is showing, the market apparently believes Scientific Games might be able to fetch a higher price for the business.

Truist Financial analyst Barry Jonas reiterated his buy recommendation on the entertainment technology stock as a result of the disclosure, telling investors in a note the SG Lottery division could enjoy significant upside in its double-digit multiple compared with the valuation of rival International Game Technology.

Rich Duprey 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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