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Investing in gambling-related stocks may seem like just that, a gamble, but buying at the right times–just like betting big at the poker table when you hold a good hand of cards–produces big payoffs. Just ask Las Vegas Sands Chairman Sheldon Adelson, the billionaire who multiplied his net worth by snapping up LVS shares near the 2009 bottom in the single-digits.
We didn’t clean up like Adelson, but even coming late to the party, we’ve more than doubled our money since I recommended Las Vegas Sands–our lone foray into the gaming stocks–back on July 26, 2012, at $36.41 per share. It’s near new highs around $77 and our yield on cost is a meaty 3.85%.
Emboldened by this success, let’s head back into the casino, but not the operators of the gambling establishents like Sands, but the makers of the machines on the floor that literally suck in the money. Las Vegas-based International Game Technology (IGT) designs, manufactures and sells slot machines and other casino games, gaming equipment and systems technology. It’s also active in online and social gaming, acquiring DoubleDown Casino in 2012.
In November, IGT topped analysts’ revenue forecasts, reporting sales for the year ended September 30 up 8.8% to $2.34 billion. Earnings, hit by higher income tax provisions, were up 21% to $1.03 per share, but that was short of the consensus outlook and shares took a beating, losing 10% in a day. Since then, the stock has recovered 10% from its $16.50 bottom three weeks ago.
IGT said its expects fiscal 2014 adjusted earnings from continuing operations between $1.28 and $1.38 per share. That gives comfortable coverage to the $0.40 in annual dividends, an amount that has risen steadily over the past four years from a $0.24 annual pace in 2009. IGT paid dividends regularly through the 1990s and reinstituted the payout in 2003. After the 2008 financial crisis, IGT did slash its dividend from $0.58, but like a rehabilitating ex-con, it has walked the straight and narrow for four years now and has room to keep on hiking the dividend.
Based on $1.29 in forecasted EPS for this yer, IGT trades at a 39% discount to its five-year average P/E ratio of 22.5, which would translate into a $29 stock price if the 2014 earnings estimate is accurate. As a multiple of trailing 12 months sales, IGT trades at a 34% discount to its five-year average price-sales ratio of 3.01. That multiple would fetch a $26.40 stock price using sales per share over the past 12 months of $8.79. On book value, the discount to the five-year average is 38%.
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