Scientific Games gets paid whether you win or lose. The company supplies equipment to run state lotteries and pari-mutuel betting at dog and horse race tracks. Lately, the New York City company has been on a roll, buying businesses that extend its gambling franchise to more countries. Citigroup analyst Geoffrey Davis rates the stock (symbol SGMS) a buy based on the potential for Scientific Games to use its size to win more business overseas, particularly in Germany.
In 1974, Scientific Games produced the first scratch-off ticket for the Massachusetts lottery. Now the company makes 15 million scratch-off tickets per year, making it the dominant player in the instant-ticket business with a 65% share of the market.
Scientific Games is also involved in lotteries, such as Powerball, in which players buy a ticket and wait for a television drawing. In January, the company bought Stockholm, Sweden-based rival EssNet for $60 million. EssNet runs online lotteries in Australia and Europe, including those in 13 of 16 German states. "EssNet's online lottery relationships should help the company compete for new instant-ticket business in Germany," Davis says. In March, Scientific Games began operating two German instant-games contracts that Davis believes will add $8 million, or 9 cents a share, to yearly profits. Moreover, he says, the acquisition puts the company in position to vie for at least a dozen more deals in Germany.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
EssNet is only the start of Scientific Games' spending spree. Pending regulatory approvals, the company expects the $183 million purchase of Global Draw, a maker of sports-betting machines in the United Kingdom, to be completed by June. And on April 5, Scientific Games bought a Connecticut betting parlor for $12 million. Scientific Games runs nearly all the off-track betting facilities in Connecticut and operates all on-track and off-track pari-mutuel wagering in the Netherlands under a license that lasts until June 2008.
Despite the moves into other kinds of gambling, the bulk of Scientific Games business is lotteries, which offer a steady stream of recurring revenues. All told, the company generated revenues of $782 million last year, about 75% coming from its lottery operations. It earned $75 million, or 81 cents per share.
Shares of Scientific Games, at $35, are near their all-time high. The stock trades at 28 times the $1.27 per share that analysts, on average, expect the company to earn this year, according to Thomson First Call. Davis thinks the company's gamble on the international lottery market could boost 2006 profits to $1.32 per share. That and future overseas growth makes the stock worth $42.50 a share, he says.
--Thomas M. Anderson
-
Rally Fades on Mixed AI Revolution News: Stock Market TodayAll three main U.S. equity indexes opened higher but closed lower as a seven-session winning streak for the S&P 500 came to an end.
-
Stretch Your Holiday Shopping Budget Further with These Under-$50 Gifts That Don't Feel CheapAmazon October Prime Day is the perfect chance to nab some under-$50 gifts that feel more expensive than they are (because normally they would be).
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have TodaySherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
If You'd Put $1,000 Into UnitedHealth Group Stock 20 Years Ago, Here's What You'd Have TodayUNH stock was a massive market beater for ages — until it wasn't.
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for a Fall Interest Rate Cut by the FedA lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
