A Jackpot--Or A Risky Bet?
(FORTUNE Magazine) – After a streak of good news for the gaming industry, it's hard to find analysts who don't rave about slot machine maker International Game Technology (IGT, $37). With a U.S. market share of 70%, the Reno-based company is expected to get the most bang from recent deals that have legalized gambling or upped slot machine quotas in Pennsylvania and California, and may soon do so in other states. IGT's share price edged from $34 toward $37 in the past few weeks after many pundits touted it as a sure winner. But IGT is hardly a guaranteed jackpot for investors. With shares currently trading at 30 times the company's trailing 12-month earnings, the stock is not only well above its historical P/E range but also rather pricey compared with rival Multimedia Games (MGAM, $26), which has a multiple of just 24. Those high expectations, in fact, could be the biggest reason to stay away from IGT right now. In the past, investors have been quick to punish even the smallest slip-ups in this industry. When competitor Alliance Gaming lowered its earnings guidance in early June, shares fell 24%. While IGT has been growing at breakneck speed--2003 revenues were $2.1 billion, up 23% from the previous year; net income was up 44%--its main growth driver (replacing old coin slots with cashless machines) may be topping out. And a gaming backlash among some voters could be a factor as well. Yes, buying IGT's shares is a safer bet than putting money into its slots. But it's still, well, a gamble. --Wilfried Eckl-Dorna |
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