Nevada-based Scientific Games (SGMS) provides technology-based gaming systems, content, and services to the casino, social gaming, lottery, and sports betting markets. In an attempt to optimize its portfolio, reduce leverage, and drive long-term sustainable value, the company is considering divesting its sports betting and lottery businesses.
Let’s take a look at Scientific Games’ latest financial performance, corporate developments, and risk factors.
Scientific Games’ Q2 Financial Results
Revenue increased 63% year-over-year in the second quarter to $880 million, exceeding consensus estimates of $765.23 million. The gaming business supported the robust revenue growth in Q2, with sales increasing 300% year-over-year.
The company reported a profit per share of $1.10, compared to a loss per share of $2.15 in the same quarter last year. Consensus estimates called for a loss per share of $0.09. (See Scientific Games stock charts on TipRanks)
Scientific Games’ Corporate Developments
The company is pressing on with its plans to divest its sports betting and lottery operations and is considering options including IPOs or sales. At the same time, Scientific Games is taking other strategic steps.
For example, it wants to take full control of SciPlay (SCPL) by purchasing the remaining 19% stake in the business that it does not already own. Scientific Games also recently acquired Sydney-based slot developer Lightning Box and has an agreement to acquire digital content studio Sideplay Entertainment.
Scientific Games also recently secured a 10-year deal to support the national lottery and sports betting in Azerbaijan.
Scientific Games’ Risk Factors
The new TipRanks Risk Factors tool shows 50 risk factors for Scientific Games. Since December 2020, the company has updated its risk profile to introduce two new risk factors, all under the Finance and Corporate category.
The company tells investors that there is no guarantee that it will succeed in its bid to acquire SciPlay. Furthermore, it says that there is no guarantee that the intended divestiture of the sports betting and lottery units will be successful or generate additional value for investors.
Scientific Games designated a specific court in Nevada as the exclusive forum for resolving certain lawsuits. It says this may discourage lawsuits against its executives. However, the company warns that if forced to resolve lawsuits outside its preferred court, it may incur additional costs, which could adversely affect its business and finances.
Finance and Corporate is Scientific Games’ top risk category, accounting for 28% of the total risks. That is below the sector average at 37%. Scientific Games shares have gained about 69% since the beginning of 2021.
Analysts’ Take
Following Scientific Games’ Q2 results, Jefferies analyst David Katz reiterated a Buy rating on SGMS stock and raised the price target to $96 from $95. Katz’s new price target suggests 37.03% upside potential.
“The company’s strong 2Q21 results reflect the broader rebound experienced in the industry. The stock upside in the near term should be defined by its divestitures of lotteries and sports betting technology…Management continues to strike an overall positive tone on the outcomes, which we believe implies further upside for the shares,” commented Katz.
Consensus among analysts is a Moderate Buy based on 4 Buys, 3 Holds, and 1 Sell. The average Scientific Games price target of $75.75 implies 8.12% upside potential to current levels.
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