Scientific Games Still No. 1, Macquarie Says

• Scientific Games Corp. (NASDAQ: SGMS) has seen a year-to-date decline of 21.39 percent in its share price, which hit a low of $9.71 on October 1.
• Macquarie’s Chad Beynon has maintained an Outperform rating and a price target of $20 on the company.
• Beynon believes that the company would continue to be No. 1 in the Systems and Instant Tickets segments, as well as product sales, and not far behind its competitors in its other businesses.

“From a growth standpoint, we expect Gaming Operations to experience the most absolute EBITDA growth for the company during the next three years given product innovation,” Beynon mentioned.

Product sales account for 20 percent of Scientific Games’ EPS. According to the Macquarie report, “At the show, the product looked great with highlights around the new Twin Star cabinet and significant product around Bally, WMS, BarCrest and Shuffle Master.”

Beynon expects the company’s market share at 30-35 percent, with upside driven by WMS legacy. The orders for 2015 and 2016 are expected at 67,000 and 71,000 total units, respectively.

Gaming ops accounts for 34 percent of the company’s EPS and based on the customer feedback and the “breadth of product shown,” Beynon expects Scientific Games to grow its install base over the next several quarters, with acceleration in cash flow.

With regard to the Systems business, which accounts for 13 percent of the EPS, Scientific Games has almost 50 percent market share in casinos and the company is expected to continue to be the market leader, driven by its robust innovation.

The company is also progressing on track with regard to its acquisition synergies, most of which were recognized in June.