Gambling companies, especially those offering online gambling services, generated significant returns over the past year as gamblers depended largely on online games given that physical casinos were closed. And with the increasing legalization of online gambling across the U.S. , many companies in this space are well positioned to benefit.
New York Governor Andrew Cuomo signed a budget legislation on April 19 that includes the framework for New York’s online sports betting plan, making online sports betting legal in New York. According to ResearchandMarkets, the global gambling market is expected to grow at a 7% CAGR over the next four years.
Against this backdrop, we think it could be wise to bet on gambling company International Game Technology PLC (IGT) given its solid financials and expansion into Nevada. Conversely, we think it wise to avoid DraftKings Inc. (DKNG) because its lofty valuations are not in sync with its near-term prospects.
Stock to Buy:
International Game Technology PLC (IGT)
Headquartered in London, IGT operates and provides gaming technology products and services worldwide. It operates through two segments: Global Lottery and Global Gaming. The company designs, sells, operates, and leases a suite of point-of-sale machines and provides online lottery transaction processing systems, among others.
On March 3, IGT announced that it received Nevada regulatory approval for its PlaySports platform for retail and online sports betting. Along with this approval, IGT’s next-generation sports betting technology stack was also approved for deployment throughout the state. So, it is well-positioned to expand its sports betting enterprise in Nevada.
IGT is scheduled to discuss its first quarter 2021 (ended March 31, 2021) financial results on May 11. The company’s global lottery revenue increased 11% year-over-year to $630 million for the fourth quarter, ended December 31. Its operating income grew 138% year-over-year to $96 million.
Analysts expect IGT’s EPS to come in at $0.62 in its fiscal year 2021, which represents a 226.5% year-over-year increase. It surpassed consensus EPS estimates in three of the trailing four quarters. Its revenue is expected to increase 80.7% year-over-year to $871.27 million for the quarter ending June 30. The stock has surged 154.2% over the past year to close Friday’s trading session at $18.07.
IGT’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Value and Sentiment. Within the Entertainment – Casinos/Gambling industry, IGT is ranked #7 of 31 stocks.
To see all the POWR Ratings for IGT (Growth, Stability, Momentum and Quality), click here
Stock to Sell:
DraftKings Inc. (DKNG)
DKNG operates as a digital sports entertainment and gaming company in the United States. It operates through two segments: Business-to-Consumer and Business-to-Business. The company provides daily sports, sports betting, and iGaming opportunities to users and is involved in the designing, development, and licensing of sports betting and casino gaming platform software for online and retail sports book.
The company’s operating loss was $324.79 million for the quarter ended March 31, 2021 compared to $66.11 million in the prior-year period. Its net loss for the quarter increased 404.3% year-over-year to $346.34 million. Also, its loss per share was $0.87 in the quarter compared to $0.37 in the year-ago period.
Moreover, its valuation looks stretched. In terms of forward EV/Sales, DKNG’s 15.44x is 808.2% higher than the 1.7x industry average. In terms of forward P/S, its 16.73x is significantly higher than the 1.54x industry average.
Analysts expect its EPS to remain negative in fiscal 2021 and fiscal 2022. The stock has lost 24.2% over the past three months to close Friday’s trading session at $48.42. It is currently trading 34.9% below its $74.38 52-week high, which it hit on March 22, 2021.
DKNG’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system. The stock has an F grade for Value, Quality and Stability, and a D grade for Growth and Sentiment.
Click here to see DKNG’s rating for Momentum also. DKNG is ranked #31 of 31 stocks in the same industry.
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IGT shares were trading at $17.45 per share on Monday afternoon, down $0.62 (-3.43%). Year-to-date, IGT has gained 3.01%, versus a 12.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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