International Game Technology Reports Solid 2Q Results; Shares Moderately Undervalued

International Game Technology IGT reported solid secondquarter results in line with our expectations. Revenue increased 11% to $600 million (compared with consensus of $572 million) and EBITDA increased 6% to $247 million (consensus of $200 million). The increase in revenue was driven by a 16% rise in product sales, primarily due to strong sales of video lottery terminals in Canada, sales to new casinos in Ohio and Illinois, and the acquisition of social gaming company DoubleDown. IGT continues to benefit from casinos accelerating the replacement of old machines, with replacement units sold increasing 68% to 8,400.

Social gaming revenue increased 31% sequentially to $54 million, and DoubleDown ranked in the top five grossing applications on Facebook FB during the second quarter. Social gaming represented less than 10% of revenue in the second quarter, but we think it has the potential to contribute a much larger percentage of total revenue if the recent legalization of online gambling in New Jersey and Nevada spurs other states to legalize online gambling, with the longterm potential for passage of legislation at the federal level. The second-quarter results did not cause us to change our narrow economic moat rating or our fair value estimate of $19 per share, and we currently view the shares as slightly undervalued.

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