Scientific Games Corp (SGMS), WMS Industries Inc. (WMS), International Game Technology (IGT): The Real Casino Action Is With the Game Makers

The combined company will have revenues of approximately $1.3 billion with $644 million being recurring revenues. EBITDA will be roughly $415 million and cost savings are expected to be about $30 million.

The target competitor

International Game Technology (NYSE:IGT) is the world’s largest manufacturer of slot machines. The company has been buying companies as well to increase its online gaming offerings. Last year the company bought DoubleDown Interactive for around $500 million, which makes social games for Facebook Inc (NASDAQ:FB). Active users at DoubleDown jumped 25% to 1.7 million in the most recent quarter and surpassed Zynga Inc (NASDAQ:ZNGA) poker as the top-grossing casino game on Facebook Inc (NASDAQ:FB).

In its earnings report this past week, the company reported that revenues increased 9% to $579 million. Earnings per share rose 43% to $0.33. Slot machine revenues increased 12% to $259.2 million. Online gaming revenue increased 69% to $72.5 million. The gross margin for this sector in the quarter was 63%. For the full year, the company is forecasting earnings of $1.26 to $1.32 per share. This implies growth of 22% to 28% over last year.

Going forward, International Game Technology (NYSE:IGT) has about $520 million remaining on its share repurchase program. The company plans to use up this authorization within the next two to four years. The company also just increased the dividend for the third consecutive quarter. The company now pays an annual dividend of $0.36 per share for a yield of 1.8%. The dividend payout ratio is only 27%, so there’s room to increase the dividend in the future.

Foolish assessment

My recommendation is to go with the market leader and own International Game Technology (NYSE:IGT). The other four companies are going to be busy integrating their respective companies while International Game Technology (NYSE:IGT) focuses on growing its business and market share. International Game Technology (NYSE:IGT) is also the cheapest with a PEG ratio of 1 and a P/E of 18. For these reasons, International Game Technology is the best bet.

The article The Real Casino Action Is With the Game Makers originally appeared on Fool.com and is written by Mark Yagalla.

Mark Yagalla has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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