Shares of Multimedia Games Holding Company, Inc. (MGAM) are rising on the back of impressive second-quarter results, announced May 3, 2012. This casino-based gaming solutions provider has a Zacks #1 Rank (Strong Buy).
Currently, the stock is trading around its 52-week high. There is also a potential for further upside based on Multimedia's solid growth projection for fiscal 2012.
Q2 Results Crush Estimates
Multimedia Games reported fiscal second quarter 2012 earnings per share of 24 cents, beating the Zacks Consensus Estimate by a massive 166.67%. Net sales jumped 31.2% over last year to $39.5 million, topping the Zacks Consensus Estimate of $36.0 million.
The company's largest segment (Gaming Operations) grew 24.0% year over year, backed by success in the domestic markets and an increase in the average installed base. Revenue for the gaming equipment and system sales segment increased 57.4% while Other revenue grew 36.4% year over year.
Gross margin improved 270 bps from the year-ago quarter to 83.9%. The operating margin increased significantly to 16.9% from 4.5%. Higher selling, general and administrative expenses were offset by reduced amortization and depreciation expenses.
Multimedia Games expects fiscal 2012 total revenue in the range of $144 million to $147 million, up from $127.9 million recorded in fiscal 2011. Expectations for growth in new unit sales led the company to raise its fiscal 2012 earnings guidance. Multimedia now expects diluted EPS between 72 cents and 76 cents, compared with its previously expected range of 42 cents to 45 cents.
Following the earnings release, the Zacks Consensus Estimate for the fiscal third quarter increased 80.0% to 18 cents, while the estimate for fiscal 2012 shot up 65.2% to 76 cents.
Valuation Looks Attractive
Shares of Multimedia Games were up 88.0% in the past 6 months, compared with a 3.5% decrease for the S&P 500.
The company is expected to grow 25.0% over the next 5 years, compared to a 17.8% growth rate for the industry. However, the PEG of 0.8 is comparable to the 0.7 for the industry, indicating upside potential.
The significant increase in the stock price in recent months was on account of the encouraging sales trend and continued development of new games. The stock is currently above its 50 and 200-day moving averages of 13.53 and 11.23, respectively.
Trading volumes are considerably lower than its peers.
Founded in 1991, Texas-based Multimedia Games Holding Co. is one of the most renowned providers of gaming machines, video lottery terminals, and associated systems and equipment. Multimedia provides Native American tribes and international lottery markets with casino gaming technology.
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