Scientific Games (SGMS) Stock Dropped on Negative Analyst Note

NEW YORK (TheStreet) -- Shares of Scientific Games Corp. (SGMS) closed down 2.09% to $16.37 on Tuesday after Deutsche Bank reiterated its "sell" rating although it raised its price target to $11 from $7.

"We believe that there are too much financial leverage in a business with challenged fundamentals across most business segments, a legacy inability to generate meaningful discretionary cash flow, and a stretched valuation relative to peers and sector historical multiples," Deutsche Bank analysts said.

Additionally, continued core gaming equipment trend deterioration and over-aggressive free cash flow targets are downside catalysts as well, Deutsche Bank added.

Scientific Games is a developer of technology-based products, services and is a supplier of solutions to lottery and gaming organizations across the world.

Separately, 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 robust revenue growth, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and weak operating cash flow."

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

  • SGMS's very impressive revenue growth greatly exceeded the industry average of 7.4%. Since the same quarter one year prior, revenues leaped by 69.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, SGMS's share price has jumped by 61.85%, exceeding the performance of the broader market during that same time frame. 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.
  • The gross profit margin for SCIENTIFIC GAMES CORP is rather high; currently it is at 62.91%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -13.11% is in-line with the industry average.
  • 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. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, SCIENTIFIC GAMES CORP reported poor results of -$2.76 versus -$0.31 in the prior year. For the next year, the market is expecting a contraction of 33.7% in earnings (-$3.69 versus -$2.76).
  • 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 92.0% when compared to the same quarter one year ago, falling from -$45.00 million to -$86.40 million.
  • You can view the full analysis from the report here: SGMS Ratings Report

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