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Competition Heats Up for International Game

Now that shares of International Game Technology (IGT) are trading at 52-week lows, investors may be wondering whether it's time to pull the lever on the slot machine maker's stock.

Some Wall Street analysts are urging caution, however, arguing that positive catalysts for another IGT jackpot remain perhaps a year away. In the meantime, intensifying competition from rivals -- combined with a sluggish slot machine market -- could continue to weigh on the stock.

In a recent survey of slot managers at 150 casinos in 23 states, Goldman Sachs analyst Steven Kent found that replacement demand is slowing but competition is "heating up," with Aristocrat Leisure of Australia, Alliance Gaming (AGI) and WMS Industries (WMS) "closing the gap" on IGT.

"We are concerned that heightened competition makes it difficult for any manufacturer to win, especially during a period of slowing slot machine sales," Kent wrote in a research note last week, when he lowered his outlook on gaming-equipment companies to cautious from neutral.

Kent expects IGT shares to stay in a trading range for the next 12 months and has an in-line rating on the stock. Goldman Sachs does and seeks to do business with companies covered in its research reports.

IGT stock was on a roll until last April, when it hit a split-adjusted, all-time high of $47.12. Business was booming as U.S. casinos went on a replacement binge, upgrading older slot machines, often to the newer cashless variety in which players insert tickets instead of change.

But as signs emerged of a cooling replacement cycle, shares began a long slide. They have also suffered as gaming expansion in several states -- which would open opportunities for IGT to sell more machines -- appears to be progressing more slowly than anticipated. The company cited the latter concern in January, when it lowered guidance for the current quarter and said it no longer expected an earnings "breakout" in the second half of its 2005 fiscal year, which ends Sept. 30.

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