Stock analysts covering the gaming industry were paying particular attention last week to the supply sector, which is reeling as sales have ground to a halt, their customers shut down for the duration of the Covid-19 pandemic.
IGT, Scientific Games, Everi, AGS and others have announced various levels of furloughs affecting employees across their markets. Gaming analysts have been adjusting earnings estimates as stock prices dip and opportunistic investors decide when to snatch a bargain.
Reports from analysts last week drew grim outlooks for the near term in the supply sector, but indicated most stand a good chance of recovering if the pandemic is over by the third quarter of the year. A report from Caterer Goodman Partners on Scientific Games said the supplier could be a victim of its debt load unless one of a few options can bail the company out.
“We list a few options SGMS has to avoid Chapter 11 by the end of Q2, but most seem likely to damage the long-term future,” the report said. “SGMS is a pass from us, and should the shutdown continue into June or longer, it is likely to be a short opportunity.
“SGMS’s interest costs have exceeded cash flows for many years, despite steadily increasing EBITDA. Just last year we wrote that debt remained too high. Now it might be deadly…
“For our money, SGMS is a definite pass and is almost an excellent short opportunity.”
Meanwhile, CDC Gaming Reports published research notes from Eilers and Krejcik Gaming principal Todd Eilers evaluating International Game Technology, Scientific Games and AGS.
Eilers wrote that he does not expect commercial and tribal casinos to begin reopening until the middle of May, and most won’t return until July.
“We are also assuming that player demand does not immediately return to prior levels and gradually improves throughout the year,” Eilers wrote.
Eilers told investors revenue estimates for the rest of the year for Scientific Games will be off by at least 8 percent, and as much as 20 percent for AGS. He estimated IGT will see a $1.2 billion drop in revenues. However, he believes all three companies will bounce back in 2021.
“Our new model assumes a cash burn in the first half of 2020 and a return to positive free cash flow generation in the second half of 2020,” Eilers said.
Eilers also wrote that IGT and Scientific Games stand to receive a short-term boost from soaring online gaming and social casino play.
Last week, Scientific Games announced an undisclosed number of furloughs with pay and work-hour reductions for others. Top executives of several suppliers have announced they are forgoing some or all of their salaries to preserve liquidity.
