Scientific Games Swings to Profit in Q2; Shares Soar 9%

Scientific Games Corporation (SGMS) delivered blowout second-quarter results driven by solid sequential growth across all its businesses. Shares soared 9.3% on the news and closed at $69.97 on August 9.

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The company reported quarterly earnings of $1.10 per share, significantly better than the Street’s estimated loss of $0.09 per share. SGMS reported a loss of $2.15 per share in the prior-year period. (See Scientific Games stock charts on TipRanks)

Moreover, revenue climbed 63% to $880 million compared to the year-ago period and outpaced consensus estimates of $765.23 million.

The company’s Gaming business reported a whopping 300% growth year-over-year aided by a new product roadmap, solid gross gaming revenue (GGR) in the U.S., and a rebound in the U.K. and Europe.

Additionally, SGMS’s Lottery and Digital businesses reported a solid quarter backed by strong instant retail game sales and record iGaming and Sports Betting revenues, respectively.

Barry Cottle, President and CEO of the company, said, “We have emerged from the pandemic a much stronger Company with significant momentum…Following our strategic review, we will be singularly focused on becoming a leading cross-platform global game company with a focus on content and digital markets. We are moving rapidly to transform our company and I have never been more optimistic about our path forward.”

The company is actively pursuing the divestment of its Lottery and Sports Betting businesses and has also reduced its net debt leverage ratio to 7.2x since the beginning of the year. The company aims to de-lever its balance sheet more significantly with the planned divestitures.

Moreover, SGMS also completed the acquisitions of Koukoi Games, a Finland-based developer of casual games, on July 2, and Lightning Box, a Sydney-based slot developer, on August 4.

Following the results, Deutsche Bank analyst Carlo Santarelli maintained a Hold rating on the stock while lifting the price target to $63 (10% downside potential) from $54.

Santarelli noted certain highlights from the results, including strong domestic participation yields, very strong lottery segment results, and continued margin efficiency.

The analyst also said, “Management noted that they expect the content and digital business to be comparable in size to the land-based business within three years, while also expecting leverage to fall in line with public peers within two years.”

Overall, the stock has a Moderate Buy consensus rating based on 4 Buys, 3 Holds, and 1 Sell. The average Scientific Games price target of $75.25 implies 7.6% upside potential to current levels. Shares have exploded 246% over the past year.