Why Scientific Games (SGMS) Is Soaring on Thursday

NEW YORK (TheStreet) -- Scientific Games (SGMS) is soaring on Thursday after beating analysts' expectations on the top line.

By midday, shares have added 19.7% to $16.59. Trading volume of 2.4 million is more than four times its three-month daily average.

The company, supplier of instant lottery games and lottery gaming systems, posted revenue 61.3% higher year over year to $401.9 million in the three months to December. Analysts surveyed by Thomson Reuters had forecast sales of $388.04 million.

Net income of 3 cents a share fell short of estimates by 4 cents.

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TheStreet Ratings team rates SCIENTIFIC GAMES CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate SCIENTIFIC GAMES CORP (SGMS) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SGMS's revenue growth has slightly outpaced the industry average of 5.4%. Since the same quarter one year prior, revenues slightly increased by 4.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 96.29% and other important driving factors, this stock has surged by 64.20% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • SCIENTIFIC GAMES CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SCIENTIFIC GAMES CORP reported poor results of -$0.64 versus -$0.13 in the prior year. This year, the market expects an improvement in earnings (-$0.23 versus -$0.64).
  • The debt-to-equity ratio is very high at 4.11 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, SGMS's quick ratio is somewhat strong at 1.24, demonstrating the ability to handle short-term liquidity needs.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, SCIENTIFIC GAMES CORP's return on equity significantly trails that of both the industry average and the S&P 500.

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