NEW YORK (TheStreet) -- Shares of Scientific Games Corp. (SGMS) are up 8.55% to $9.27 after the supplier of solutions to lottery and gaming organizations worldwide agreed to acquire Bally Technologies (BYI) for about $3.3 billion, excluding net debt, buying up a bigger rival as consolidation in the slot-machine industry accelerates, Bloomberg reports.
Scientific Games, controlled by billionaire Ronald Perelman, will pay $83.30 in cash per Bally common share, the companies said in a statement today, a premium of 38% over Bally's closing price yesterday.
The deal, which includes net debt of $1.8 billion, will immediately add to Scientific Games's earnings per share, the statement said.
Shares of Bally Technologies are up 29.55% to $77.95
TheStreet Ratings team rates SCIENTIFIC GAMES CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate SCIENTIFIC GAMES CORP (SGMS) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, disappointing return on equity, generally high debt management risk, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 242.1% when compared to the same quarter one year ago, falling from -$13.15 million to -$45.00 million.
- 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.
- The debt-to-equity ratio is very high at 11.20 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 1.45, demonstrating the ability to handle short-term liquidity needs.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 32.02%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 253.33% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- SCIENTIFIC GAMES CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, SCIENTIFIC GAMES CORP continued to lose money by earning -$0.31 versus -$0.50 in the prior year. For the next year, the market is expecting a contraction of 274.2% in earnings (-$1.16 versus -$0.31).
- You can view the full analysis from the report here: SGMS Ratings Report