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Bally Technologies, Inc. Message Board

  • drjackcar drjackcar Oct 26, 2012 7:55 AM Flag

    note from Sterne Agee

    Visibility and growth at high levels, equity multiple should follow; Raising Estimates, Target Price
    Our Call
    F1Q13 results $0.07 above consensus and upwardly revised guidance strengthens our argument for greater equity multiple bifurcation amongst suppliers. Demonstrated continued momentum in all three of BYI’s major divisions should reinvigorate an upward trajectory for shares, in our view.

    Visibility high, poised for multi-year record growth. Content “hot” streaks can often wane quickly for suppliers; we believe BYI’s growth is more diversified and core-technologically driven than a hot “skin” or game title. Growth is being fueled by Company specific multi-year contracts/installation opportunities stemming from unique systems products (iView DM and a growing bonusing suite) and game technology, not just titles (iDeck, Pro Curve), in our view. When combined with a slowly improving industry slot replacement cycle and a solid new casino and expansion schedule, we believe there is strong visibility for BYI in both FY13 and FY14.

    Three legs of the stool. Systems revenue should not be a “box of chocolates” for the next few years - visibility is high, in our view. F1Q13 systems maintenance (recurring) revenue reached a quarterly record of $21m. Contracted/scheduled tens of thousands of systems installations in Canada and South Africa begin to ramp over the next few months. For every 4,000 units of systems installations BYI garners ~$0.18 per share and $0.02 in recurring maintenance. In Game Ops, BYI continues to benefit from its small WAP footprint (less cannibalization and small installs gains consequential to EPS) as well as strong title releases (Michael Jackson now a top 4 performer, according to checks). For game sales, F1Q13 margins were the best in 7 quarters. We believe gross margins will continue to move to the high 40’s by the end of FY13 and have the potential to hit the low 50’s by FY14.

    Capital allocation. BYI repurchased ~1.5m shares, ~$67m worth during F1Q13 (20 consecutive quarters of stock repurchases) and has approved a new $150m share repurchase program. BYI is under ~1.9x levered. Management noted it would be comfortable going to 3x leverage (amendment to credit agreement) to repurchase common stock in larger size and/or for an acquisition.

    Guidance increase. EPS guide was raised to $3.05 to $3.35 from $2.95 to $3.30, implying EPS growth of between 25% and 37%. Midpoint of new guide is $3.20 versus consensus of $3.17. On its conference call, management also indicated early confidence for sequential growth in its FY14.

    Estimate adjustments, valuation. FY13/FY14 to $3.22/$3.53 from $3.15/$3.50. BYI trades for 14.1x CY13 EPS (14.7x FY13 EPS). Our FY13 estimate calls for 32% YoY growth. Our $60 target from $57 is based on 18x CY13 EPS of $3.36.

 
BYI
61.07+0.74(+1.23%)Jul 22 4:02 PMEDT

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