On Friday, Stifel, a financial services company, maintained its Buy rating on shares of Everi Holdings Inc. (NYSE:EVRI) with a steady price target of $11.00. The firm's assessment follows unexpected developments in the gaming sector, specifically regarding the merger between Everi and International Game Technology (NYSE:IGT).
The analyst expressed surprise at the recent turn of events, which included speculation of Apollo's interest in IGT's Global Gaming & Digital assets. Despite initial thoughts that Apollo might bid during IGT's strategic review, complexities in merging the two companies made it seem unlikely. However, the current situation is deemed favorable for IGT shareholders and, to a lesser extent, for Everi as well.
Stifel's analysis suggested that IGT shareholders who were interested in the lottery re-rate thesis might not retain their Everi shares post-merger. Concerns about the ability of the combined entity to realize top-line synergies and the industrial logic of the merger could have led to a constrained valuation due to fears of dis-synergies and near-term share price decline for Everi.
The analyst noted that the implied takeout valuation of approximately 6.5 times the 2024 estimated Adjusted EBITDA for IGT's Gaming & Digital business was lower than many had anticipated. This valuation is seen as not fully reflecting IGT's product momentum and potential for margin expansion.
Nevertheless, the preference for cash proceeds and certainty of outcome in an outright sale is recognized as beneficial for investors focused on the potential re-rating of a lottery-focused IGT.
Stifel anticipates a re-rating of shares today, suggesting an incremental value of around $4 per share based on simple calculations. The firm recommends that investors continue holding shares in anticipation of upcoming catalysts that could further re-rate the lottery segment, including second-half 2024 lottery same-store sales acceleration and the Lotto contract Request for Proposal (RFP).
In other recent news, International Game Technology (IGT) has secured a deal to implement its video lottery terminal central monitoring system for the Ohio Lottery Commission. This agreement, which will run through June 30, 2033, comes after a competitive bidding process and will see IGT oversee more than 10,000 VLT machines across Ohio's seven racinos.
In addition to this, IGT reported robust first-quarter results for the fiscal year 2024 with revenues nearing $1.1 billion, primarily driven by their Global Gaming and iGaming segments.
Stifel upgraded IGT's stock from Hold to Buy, citing reduced risks associated with the company's Gaming & Digital spin-off and the Italy Lotto contract tender. Still, Susquehanna and Truist Securities adjusted their price targets for IGT, reflecting their responses to the company's strategic developments and market conditions.
IGT has also extended its contract with the Mississippi Lottery Corporation until 2029, which includes the provision of online gaming systems and instant ticket services. These are among the recent developments for IGT, as it continues to navigate its business restructuring, contract tenders, and financial performance.
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