Slot Machine Stocks Inexpensive, M&A Could Perk Up, Says Analyst

Posted on: October 16, 2023, 04:26h. 

Last updated on: October 16, 2023, 04:32h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Following the Global Gaming Expo (G23), which took place last week in Las Vegas, some sell-side analysts came away more constructive on various gaming equities, including slot machine stocks.

IGT
A bank of Wheel of Fortune slot machines. Manufacturer IGT and PlayAGS are among the slot machine stocks that could generate upside. (Image: TheStreet.com)

In a new report to clients, Stifel’s Jeffrey Stantial observed that shares of some slot machine manufacturers and select casino operators are trading “near trough multiples,” and mergers and acquisitions chatter was elevated at G2E. Amid limited signs of deteriorating demand, the analyst said his preferred slot machine stock ideas into the year-end are International Game Technology (NYSE: IGT) and small-cap name PlayAGS (NYSE: AGS).

Most slot managers we spoke with cited largely stable NTM purchasing intentions, barring a material pullback, though tailwinds from 2020/21 deferred capex are likely diminishing,” wrote Stantial. “Our 2024 estimates across the manufacturer group presume a ~MSD% pullback in the replacement cycle, which still feels reasonable based on supplier & customer tone throughout the show.”

Among other things, G2E is often the forum at which slot makers roll out new games for consideration by casino slot managers.

AGS, IGT Showed Well at G2E

Citing conversations with slot buyers at G2E, Stantial customers were broadly impressed by new offerings from the usual suspects, such as Aristocrat Leisure and Light & Wonder. Those companies, along with IGT, are the three-largest slot suppliers in North America.

PlayAGS was heralded by slot managers as among the most-improved firms in the category. There are tailwinds for gaming device manufacturers. Those include consumers remaining dedicated to casino visits, which provides operators with much-needed resiliency. Additionally, analysts believe supply chain pressures in the industry are easing.

Stantial said the stars could be aligning for slot machine stocks such as PlayAGS, which has room for growth, and IGT, which has stock-specific sparks.

“Putting it all together, forecasting NTM market share trends remains incredibly difficult with no clear share donor. As such, we tend to favor small suppliers with more material whitespace (AGS) or suppliers with idiosyncratic catalysts (IGT),” added the analyst.

M&A Could Spark Slot Machine Stocks

Consolidation in the slot machine sector could be poised to perk up in the months ahead. For now, many eyes are on IGT, which announced in June that it’s mulling strategic alternatives for its global gaming and PlayDigital units.

Likewise, Stantial said smaller rival Ainsworth proclaimed at G2E that it would be open to acquisitions and that it would be receptive to offers to be acquired. There was also chatter of iGaming and online sportsbook operators mulling deals to bring tech stacks in-house, and another familiar rumor popped up at the conference.

“Lastly, MGM management commentary on a panel indicated they feel the BetMGM JV structure may not be optimal long-term, which coupled with frustration from certain Entain shareholders, is likely to re-surface speculation regarding an MGM/Entain acquisition,” concluded Stantial.