Equity Analyst David Katz of Jeffries LLC has issued a “Buy” recommendation for gaming supplier Scientific Games Corporation, following a fourth-quarter revenue report in which the supplier exceeded performance estimates.
“The solid performance on the top line and better-than-expected bottom line is a positive for the story, in our view,” Katz wrote. “We believe the continued strength in casino systems, the outperformance in slot sales and the forthcoming benefits from the NYX acquisition should become better understood and priced in over time. We expect the stock to react positively to the release.
“SGMS reported 4Q17 results after the close today, with adjusted consolidated EBITDA of $324.5 million (10.6 percent YoY), which was above our estimate of $320.5 million and above consensus of $318.0 million. Net revenue of $823 million (+9.4 percent YoY) was in line with our expectation of $823.7 million and consensus of $810.4 million.
“Gaming equipment sales revenue of $189.8 million was up 12.0 percent YoY, compared with our $176.5 million. The company sold 10,249 units in the quarter compared with our 8,925. Meanwhile, gaming operations revenue of $157.8 million was lower than our $170.6 million, as both the premium installed base and yield were modestly lower YoY.
“Casino systems, which we consider to be the most misunderstood aspect of the company, generated revenue growth of 31.5 percent to $83.5 million, well ahead of our $70.7 million estimate. This level of growth should continue through 2018 as the rollout of a new system in Alberta and then Ontario continues and should be followed by the new system deal at Turning Stone, which was announced in the past several days.
“Lottery revenue of $201.1 million (+3.9 percent YoY) was slightly below our expectations of $205 million, while EBITDA of $94.6 million (+19.6 percent YoY) was below our estimates of $103.9 million. Interactive revenue of $113.3 million (+23.7 percent YoY) was 11.1 percent below our expectations, while EBITDA of $26.9 million (+36.6 percent YoY)
