Sell-side analysts have become more cautious recently, cutting price targets and valuations as the potential negative impact on gaming stocks of inflation, and a perhaps more pessimistic and less cash-flush consumer, begin to sprout.
Yet they might have to cut more to be realistic. Perhaps a lot. Take these game stocks: Light & Wonder, IGT, Aristocrat, Everi, AGS and Inspired Entertainment. All six are 30 percent and 40 percent and more off of their highs.
And they’re well below consensus forecasts. Here’s how far they would have to jump as of this writing to reach consensus:
- AGS +118 percent
- Inspired +103
- Everi + 77
- IGT + 74
- Light & Wonder + 50
- Aristocrat + 28
Clearly, analysts are either way behind on lowering price targets to match reality, or there are big bargains out there for investors brave enough to commit money in this uncertain time.
Interestingly, each of these companies has a story to motivate investors.
Let’s go down the list.
AGS stock continues to punch below its weight in terms of its business growth and potential. The stock has been hurt by the belief that the company has underperformed on business execution. However, growth and growth potential are undeniable, and CEO David Lopez is focused on execution. It’s a show-me stock that just might show us.
Inspired might be the best pure growth story in the group, as Executive Chairman Lorne Weil steadily builds all aspects of his business in ways reminiscent of what he achieved at Scientific Games before it went on its merger binge several years ago, and has since been transformed into Light & Wonder.
Everi is riding two waves in its FinTech business: increasing cash transactions in casinos as players return, and the nascent cashless phenomenon. On the games side, Everi is riding a wave of its own making—the success of its new games and ever-broadening product line.
IGT is years away from the days when it so dominated the North American slot machine market that it had nowhere to go but down. Now, it’s more of a ship share peer with Aristocrat and Light & Wonder. More importantly, it has focus under a reorganization that split it between gaming and lottery segments. Meanwhile, the company continues to maintain its long-held lead in slot categories such as video poker and reel wide area progressives, according to the latest Eilers-Fantini Gaming Performance Database.
Light & Wonder has undergone an exceptional transformation led by CEO Barry Cottle, who came to the job as a technology guy, and relatively new Chairman Jamie Odell, who presided over Aristocrat’s rise as its CEO.
The transformation at L&W rid the company of slow-growth lottery and somewhat incongruous sports betting. The result: sales proceeds that dramatically reduce burdensome debt, and the ability to focus on games, including the fast-growing and huge online market, much like the transformation Aristocrat underwent under Odell.
Aristocrat. It might be safe to say that Aristocrat is where L&W and every other games company wants to be: Dominating the gaming industry with the popularity of its games and products and getting 40 percent of its EBITDA from digital, including non-gambling gaming.
And the hits keep on coming. The latest Eilers-Fantini Gaming Performance database, for example, reveals Aristocrat leading in most categories of slot machines, sometimes amazingly so, such as 13 of the Top 15 premium leased video reels.
To sum up, with the caveat that an investor must always analyze a company’s profit prospects and valuation, the business fundamentals of the publicly traded games companies look pretty solid.
