IGT Earns Price Target Lift on Divestment Plans

Earlier this month, International Game Technology (NYSE: IGT) announced plans to explore strategic alternatives for its global gaming and PlayDigital units news that’s been well-received by analysts and investors.

In a new report to clients, Stifel analyst Jeffrey Stantial reiterates a “buy” rating on IGT, while lifting his price target on the stock to $38 from $32. That implies upside of 25% from the June 23 close. It’s possible that IGT those businesses. The company noted it could also retain those segments and increase related investment. However, analysts view sales or spin-offs as the most likely outcomes.

Our most salient takeaways from this analysis include: 1) there is a larger set of addressable buyers than intuition would suggest, 2) Global Gaming margin expansion potential positioning for the hyper-growth iCasino content opportunity make IGT an attractive target for both financial strategic buyers,” noted Stantial.

Should IGT ultimately divest its global gaming and PlayDigital operations, the new company would be a standalone lottery entity, one likely to “re-rate higher,” added Stantial.

In November 2021, IGT revealed of its iGaming and sports wagering unit. But related action was limited until this month.

For years, analysts and investors pondered if and when the company would evaluate separating its global gaming business. That s so its highly profitable lottery arm could get more credit in the investment community. Over that period, IGT’s board and management team were reluctant to explore such a transaction. But perspectives appear to have shifted.

“We highlight the still recent transition in leadership, with current CEO, Vince Sadusky, bringing new perspective to the business, much of which is informed by his experience outside the gaming industry,” added Stantial. “Similarly, we expect former CEO Marco Sala brought fresh perspective to IGT s largest shareholder after transitioning to CEO of De Agostini (note De Agostini currently holds ~62% voting power).”

Should the company part with the global gaming and PlayDigital units, it’s possible that its lottery business, which accounts for , will finally get the respect it deserves from investors.

While IGT hasn’t formally declared whether the aforementioned segments will be sold or spun off, there could be momentum to sell the global gaming unit. That s because that business is improving, and could attract a variety of suitors armed with compelling offers.

Over the past several years, IGT has streamlined that business by selling noncore assets moves that have resulted in cost savings of more than $210 million. With casinos upgrading slot machines, the business could be attractive to buyers. IGT is one of the top three slot manufacturers in North America by market share.

“IGT s market-leading share for VLTs and bartops has also proven stickier than feared following competitive launches,” concluded Stantial. “Certainly competition in the N.A. slot market is as intense as ever with strong product from most major suppliers, though it seems evident IGT has at minimum stabilized market share following ~1.5 decades of bleed, arguably even showing some reasons to be optimistic on further share gains over the next several years.”