J.P. Morgan Reiterates Neutral Rating on Scientific Games Corporation

In a report published Wednesday, J.P. Morgan & Co. reiterated its Neutral rating on Scientific Games Corporation

. J.P. Morgan noted, “This morning, SGMS announced that it signed a contract to supply instant tickets and related services to the Texas Lottery Commission (TLC). As opposed to the prior instant ticket contract with the TLC, whereas SGMS was the primary instant ticket provider, the new agreement with the TLC now calls for SGMS, Pollard, and GTECH to all be primary instant ticket providers. This should not come as a surprise to investors as the contract has been in the public domain over the last couple of weeks (i.e. Texas Lottery Commission website). Overall, we think the announcement is a net negative to SGMS shares as (1) we believe the competitive bidding process for TX will likely lead to lower profit margins relative to the prior contract, and (2) SGMS is no longer the sole primary provider, indicative of the hightened competitive environment (do not see this mitigating), and lowering its overall share of the pie. Looking ahead, there are several instant ticket contract renewals on the horizon, which we believe could be a headwind for shares.” Scientific Games Corporation closed on Tuesday at $7.06.