Please ensure Javascript is enabled for purposes of website accessibility

This Former Las Vegas Gaming Company Might Finally Be a Bet

By Bradley Seth McNew - Jul 17, 2015 at 11:20AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's not a big casino, but it's stock could see much bigger gains.

Is the new IGT a bet? Photo: merger.igt.com.

In the summer of 2014, International Game Technology and European gaming company TECH announced that a merger was in the works. That merger, completed in April of this year, is a new company called International Game Technology PLC (IGT 0.34%).

Former IGT shareholders were left with about $14.34 in cash plus almost 1/5 of a share of the new company for every one share of the old IGT they held. The new company is also trading as IGT on the New York Stock Exchange, and has more than a $4 billion market cap, and could be nearing a valuation high enough to earn a place in the S&P 500.

Now the world's leading gaming company?
Shareholders of the old IGT might want to put that cash back in because these two companies together are much better than each alone. As the press release announcing the deal put it:

GTECH, the largest global lottery business, and IGT, the world leader in the gaming equipment space, have merged to create the world's leading end-to-end gaming company.

Thanks to the name brand and technology of IGT plus the international reach of GTECH, the new IGT claims it is "uniquely positioned to provide the government-sponsored and commercial gaming industry with proven solutions across the entire continuum of products and channels." Here's why that might be a bet worth making.   

More than the sum of their parts
The old IGT was an interesting company as a slot machine manufacturer for much of the U.S. market. However, since the 2008 recession, the company has had a hard time convincing casinos to add to or update their gaming machine inventory, thus losing significant revenue. 

However, after merging with GTECH, the new IGT has some interesting growth prospects ahead. The old IGT already had an interesting assortment of technology with physical machines, but its highest growth lately has come from online gaming.

Its social gaming revenue increased 17% year over year in the most recent quarter. GTECH itself is a large player in the lottery business throughout the world. The lottery and online gaming segments of the two companies together could lead to new growth outside of casinos and the typical gaming hubs like Las Vegas and Macau. 

Is the new IGT a buy?
There are still risks to look out for. Each of these two entities reported separate quarterly earnings in May, as they were still separate companies in January through March. While GTECH reported rising revenue and fairly constant earnings, IGT reported a 22% drop in revenue year over year, and declining earnings. This follows similar revenue and earnings declines throughout 2014.

However, the value of the new IGT stock is now mixed with the potential growth drivers of these two companies, and combined it could have huge upside. Bank of America showed support for the new IGT when it released a report in June showing its own coverage of IGT, and giving the stock a buy rating with a $24 price target.

Looking at the new IGT's current price, this could be a very valuable place to make a bet. The new company's estimated 2016 year-end earnings puts its current share price at just 10 times those future earnings. Additionally, the company's nearly 5% dividend yield also looks attractive.

If things with these two companies operating together go as planned, the next few years could prove to be a winning hand for IGT.

Bradley Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

International Game Technology Stock Quote
International Game Technology
IGT
$20.61 (0.34%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.