According to a recent Telsey Advisory Group research note, their upgrade on International Game Technology was driven by the firm’s comfort with the story and its prospects for free cash flow, reinforced by several elements.
Primarily, after meeting with management and reviewing their model, the analysts at Telsey are more confident on “the prospective strong cash flow generation for 2016 and beyond.”
Secondarily, the firm’s channel checks still suggest that International Game Technology “is providing a foundation for a productive turnaround.” The experts noted that, while there still remains risk associated with the Italian Lotto contract RFP, evidence suggests that a positive outcome is more likely than a negative one.
Overall, Katz and Davis think that, “if management can maintain its stable lottery business and stabilize the U.S. slot business, the shares are a compelling cash flow and value play.”
The report then delves into some of the issues mentioned above:
- The most prominent attribute of the combined companies (IGT and GTECH S.p.A.) is cash-flow generation.
- Regarding the turnaround of the company’s slot business in North America, the experts think “the foundation is being formed and should progress over the next 18-24 months.”
- Management “has executed its re-entry into the US institutional market thoughtfully and credibly thus far,” understanding “the importance transparency, meeting expectations in the near term and allocating capital thoughtfully by U.S. capital markets standards,” the analysts assured.
Disclosure: Javier Hasse holds no stakes in any of the securities mentioned above.
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