Argus Research has reiterated its BUY recommendation for International Game Technology PLC (NYSE: IGT) with a target price of $25, offering a potential upside of over 20% from its recent closing price of $20.90. Despite reporting a quarterly loss, IGT's strategic initiatives, including a planned $6.3 billion divestment of its Gaming & Digital division, position it for long-term growth in the lottery and gaming markets. With solid recurring revenue streams and an expanding market presence, IGT remains a compelling investment opportunity for risk-adjusted growth.

1. Investment Thesis: Long-Term Growth Opportunities

Recurring Revenue Strength: IGT's lottery business, characterized by consistent and predictable cash flow, remains the cornerstone of its operations.

Gaming Expansion: The divestment of its Gaming & Digital division will allow IGT to focus on high-margin lottery operations while reducing debt and enhancing shareholder value.

Target Price: Argus sets a 12-month price target of $25, supported by the company's strong market position and promising growth trajectory.

2. Recent Developments and Quarterly Performance

Q3 2024 Earnings: IGT reported an adjusted loss of $0.02 per share, a decline from $0.04 earnings in Q3 2023, missing the consensus estimate of $0.27. Revenue decreased by 2% to $587 million.

Segment Performance:

Service Revenue: Declined by 2% to $566 million due to lower online lottery and instant ticket sales.
Product Revenue: Dropped by 17% to $20 million, reflecting fewer gaming equipment sales.
EBITDA and Margins:** Adjusted EBITDA fell by 6% to $264 million, with margins contracting from 46.4% to 44.9%.

3. Strategic Moves: Divestment and Debt Reduction

Gaming & Digital Sale: In a $6.3 billion deal with Apollo Global Management, IGT is divesting its Gaming & Digital business. This transaction, expected to close by Q3 2025, will result in:

Gross Proceeds: $4.05 billion allocated toward debt reduction and operational realignment.
Strategic Realignment: Enhanced focus on lottery operations, a key driver of long-term profitability.
Debt Management: IGT has reduced its net debt to $5.2 billion as of Q3 2024, compared to $5.3 billion at the end of 2023.

4. Financial Projections and Guidance

FY 2024 Outlook:

Revenue: $2.50–$2.55 billion.
EBITDA: $1.16–$1.18 billion.
Q4 2024 Guidance:

Revenue: $640–$690 million.
EBITDA: $280–$300 million.
Long-Term Growth: IGT's earnings growth rate is projected at 7% over the next five years, driven by international expansion and operational efficiency.

5. Dividend and Valuation

Dividend Policy: IGT reinstated its dividend in 2021, offering a quarterly payout of $0.20 per share. The current annualized yield stands at 3.8%.

Valuation Metrics: IGT's shares trade at 14.3x Argus's revised 2025 EPS estimate, suggesting an attractive valuation relative to its growth potential.

6. Risks to Consider

Market Dynamics: Lower discretionary spending or regulatory delays could impact gaming demand and revenue growth.

Operational Risks: Execution challenges related to the Gaming & Digital divestment and potential cost pressures may weigh on margins.

Economic Sensitivity: A slowdown in tourism or economic downturns could adversely affect IGT’s revenue streams.

7. Analyst Commentary

John Staszak, CFA, Argus Research: “We maintain our BUY rating on IGT as the company continues to capitalize on its strong market position and growth opportunities in the lottery sector. While near-term headwinds exist, IGT's strategic realignment and debt reduction initiatives provide a solid foundation for sustainable growth.”