International Game Technology vs. Scientific Games: Which Gambling Stock is a Better Buy?

Headquartered in London, International Game Technology PLC (IGT) provides worldwide gaming technology products and services. It operates in two segments: Global Lottery and Global Gaming. In comparison, Scientific Games Corporation (SGMS) develops technology-based products and services and related content for international gaming, lottery, social, and digital gaming industries. It operates in Gaming; Lottery; SciPlay; and Digital segments.

Gambling companies, especially those offering online services, generated significant returns over the past year as people increasingly turned to online gambling, given that the physical casinos were closed for COVID-19 lockdown reasons. With the increasing legalization of online gambling across the country, many companies in this space are well-positioned to benefit. According to ResearchandMarkets, the global gambling market is expected to grow at a 7% CAGR over the next four years.

IGT has gained 19.6% in price over the past six months, while SGMS has returned 9%. Also, IGT’s 117.6% gains over the past year are significantly higher than SGMS’ 71.8% returns. Furthermore, IGT is the clear winner with 56.6% gains versus SGMS’ 3.5% returns in terms of their past three months’ performance.

But which of these two stocks is a better buy now? Let us find out.

Latest Developments

On November 1, 2021, IGT announced that it had expanded its sports betting market opportunities in Puerto Rico via a multi-year PlaySports technology and services agreement with The Stadium LLC. Joe Asher, IGT President of Sports Betting, said, “The prospect of adding Puerto Rico as a territory with PlaySports-powered sportsbooks is another exciting step in our effort to further expand our footprint across North America."

On November 3, 2021, SGMS acquired Authentic Gaming, marking the company's first move into the live casino market, and significantly enhancing the company's product portfolio. This acquisition marks another milestone in SGMS' strategic plan as it continues to realize its vision to become the leading cross-platform global game company.

Recent Financial Results

IGT’s revenues increased 21% year-over-year to $984 million for its fiscal third quarter, ended September 30, 2021. The company’s adjusted EBITDA grew 42% year-over-year to $407 million, while its adjusted net income came in at $101 million versus a $129 million loss in the prior-year quarter.

SGMS’ revenues increased 25% year-over-year to $539 million for the fiscal third quarter, ended September 30, 2021. The company’s adjusted EBITDA from continuing operations grew 74% year-over-year to $203 million. In comparison, its adjusted net income came in at $100 million compared to a $187 million loss in the prior-year quarter.

Expected Financial Performance

Analysts expect IGT’s revenue to increase 84.3% for the quarter ending December 31, 2021, and 30.5% in its fiscal year 2021. The company’s EPS is expected to grow 329.2% for the quarter ending December 31, 2021, and 438.8% in fiscal year 2021. Furthermore, its EPS is expected to grow at a 30.2% rate per annum over the next five years.

SGMS’ revenue is expected to decrease 26.6% for the quarter ending December 31, 2021, and 13.3% in its fiscal 2021. Its EPS is expected to grow 113.7% for the quarter ending December 31, 2021, and 157.6% in its fiscal 2021. However, the company’s EPS is expected to decline at a 74.1% rate per annum over the next five years.

Profitability

IGT’s trailing-12-month revenue is 1.27 times SGMS’. IGT is also more profitable, with EBIT and EBITDA margins of 20.65% and 33.69%, respectively, compared to SGMS’ 15.53% and 28.60%, respectively.

Furthermore, IGT’s ROA and ROTC of 4.16% and 5.31%, respectively, are higher than SGMS’ 3.75% and 4.37%.

Valuation

In terms of forward EV/S, SGMS is currently trading at 6.26x, which is 99.4% higher than IGT’s 3.14x. Moreover, SGMS’ 16.05x forward EV/EBITDA ratio is 105.5% higher than IGT’s 7.81x.

So, IGT is relatively affordable here.

POWR Ratings

IGT has an overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. In comparison, SGMS has an overall C rating, which translates to Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

IGT has a B grade for Sentiment, consistent with analysts’ expectations that its revenue will increase in the coming months. In contrast,  SGMS has a D grade for Sentiment, which is in sync with analysts’ expectations that its revenue will decline in the near term.

Of the 31 stocks in the Entertainment - Casinos/Gambling industry, IGT is ranked #3. In contrast, SGMS is ranked #12.

Beyond what I have stated above, we have also rated the stocks for Momentum, Value, Stability, Quality, and Sentiment. Click here to view all the IGT ratings. Also, get all the SGMS ratings here.

The Winner

With increasing technological advances and legalization, the gambling market is expected to grow in the coming months. While IGT and SGMS are expected to gain, it is better to bet on IGT because of its higher profit margin, better growth prospects, and lower valuation.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Entertainment - Casinos/Gambling industry here.

IGT shares were trading at $28.22 per share on Monday afternoon, up $0.65 (+2.36%). Year-to-date, IGT has gained 66.59%, versus a 27.27% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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