International gaming technology is well worth the bet

If International Game Technology PLC (NYSE: IGT) were a slot machine, it would display three diamonds. The stock is up more than 60% from its September 2022 low and on the move after a stellar performance in the third quarter.

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When it comes to reopening games, the maker of electronic gaming equipment is proving to be a diamond in the rough. While most airlines and restaurants are experiencing bumpy recoveries, casinos are booming.

According to the American Gaming Association, the US casino industry had its best quarter in the third quarter. Commercial casino operators brought in more than $15 billion as consumers continued to spend on experiences in the face of high gas and grocery prices. And since this excludes revenue from tribal casinos, the overall figure is likely much higher.

Americans' willingness to visit casinos during weak economic times is good news for IGT. Casinos are more likely to spend on new slots and table games when business is good. This, along with the emergence of online gaming, was evident in the company's latest report.

How were IGT's third quarter financial results?

IGT reported an 8% increase in revenue in the third quarter. Leading the way was the Global Gaming division, which recorded a 31% increase in revenue thanks to the reopening of casinos and the reactivation of installed equipment. IGT generates revenue not only from the sale of new equipment, but also from various maintenance and service streams. Revenue decreased by 4% in the Global Lottery business.

Third quarter earnings per share (EPS) were $0.43, representing a 13% improvement over the prior year period. Revenue and EPS exceeded Wall Street expectations.

As the income statement has strengthened, so has the balance sheet. IGT ended the period with net debt of $5.1 billion, down 16% year over year. Debt reduction is a benefit not only because it reduces interest expense, but also improves the company's chances of securing additional financing to pursue organic growth or M&A opportunities. At 3.1x, IGT's net debt ratio is the lowest ever. It's just remarkable considering what he went through at the start of the pandemic.

IGT is not the only one to have had a good third quarter. In September 2022, a lucky player at Foxwoods Resort Casino in Connecticut won over $1.2 million playing IGT's Wheel of Fortune Pink Diamond slot. Given that the Wheel of Fortune franchise has awarded over 1,100 millionaires since its inception in 1996, it's easy to see why casino operators (and their visitors) consider these machines must-haves.

What is the outlook for IGT?

Management maintained its 2022 revenue guidance of $4.1 billion to $4.2 billion, with $1 billion expected in the current quarter. At the midpoint, the full-year outlook represents minimal growth beyond 2021 levels. But some growth on a solid base beats a return to 2020 levels, as has been common in other industries. in reopening. In 2021, IGT's revenue jumped 31% and went from a big loss to a big profit.

Longer term, the mid-cap company has a pair of aces in the hole that should complement the traditional gaming gear business. Online gaming becomes a bigger part of the mix as states legalize internet casinos. IGT's online gaming product suite offers casinos a cost-effective alternative to developing an online gaming platform in-house.

Sports betting is the real engine of IGT's growth story. The company's sports betting solutions are also a quick way to get into the market and avoid being late to the game.

Will IGT stock continue to rise?

IGT is a three-headed growth monster with promising opportunities in land-based casinos, online gambling and sports betting. Having a trio of diversified growth engines in hand should entice investors to come to the tables.

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