J.P. Morgan Reiterates Overweight on WMS Industries (WMS)
J.P. Morgan is out with a research report this morning, where it reiterates its Overweight rating on WMS Industries (NYSE: WMS); it has a $48.00 price target on the stock.
The analysts cited a meeting with company management, where management continued to highlight its commitment in maintaining a dominant position in the sector, and its increased R&D and gaming operations capex make complete sense for future growth.
The analysts believe that the company looks “fine” in the near term given that management said demand continues to remain solid. Management stressed that its recently launched Lord of the Rings game continues to garner a lot of excitement from both slot managers and customers as win/day statistics are coming in close to those achieved by Wizard of Oz.
As for valuation, the analysts remarked, “Our Dec 2010 price target remains $48. Our price target is based on 22x cash EPS plus ~$4 in excess cash per share. Our 22x multiple is in line with our long-term EPS growth rate for WMS. Our $48 price target implies that WMS can trade at ~8.5x F2011E EV/EBITDA, which we feel is fair in relation to sustainable low-double-digit EBITDA growth and excess free cash flow generation. At current levels, WMS trades at 18.6x our F2011 EPS estimate and 15.1x our F2012 EPS estimate. The historical forward PE average for WMS since 2005 is 23.0x.”
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