Scientific Games Corp. (SGMS) - Bear of the Day
October 02 2012 - 7:00PM
Zacks
Scientific Games Corp. (SGMS) reported dismal second quarter
results due to higher expenses. Instant lottery sales declined in
Italy and China, which remains a major headwind in the near term.
We believe that the visibility regarding its privatization and
outsourcing of state lottery management, while a major growth
opportunity, remains murky, thereby adding significant uncertainty
to the stock. Moreover, increasing investments for product
development and strong competition is expected to hurt
profitability in the near term.
Overall, this negative scenario compels us to downgrade the
stock to an Underperform recommendation. We set a price target of
$7.25, which implies a P/E multiple of 80.6X our 2012 earnings, a
premium to both industry and S&P 500 average.
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