Stock analysts covering the gaming industry have been paying particular attention to the supply sector, which was sent reeling as sales ground to a halt and their customers shut down for the duration of the Covid-19 pandemic.
IGT, Scientific Games, Everi, AGS and others recently announced various levels of furloughs affecting employees across their markets. Gaming analysts have been adjusting earnings estimates as stock prices dipped and opportunistic investors decided when to snatch a bargain.
Reports from analysts drew grim outlooks for the near term in the supply sector, but indicated most stand a good chance of recovering if the pandemic is over by the third quarter. A report from Caterer Goodman Partners on Scientific Games said the supplier could be a victim of its debt load unless one of a few options can bail the company out.
“We list a few options SGMS has to avoid Chapter 11 by the end of Q2, but most seem likely to damage the long-term future,” the report said. “SGMS is a pass from us, and should the shutdown continue into June or longer, it is likely to be a short opportunity.
“SGMS’s interest costs have exceeded cash flows for many years, despite steadily increasing EBITDA. Just last year we wrote that debt remained too high. Now it might be deadly… For our money, SGMS is a definite pass and is almost an excellent short opportunity.”
Meanwhile, CDC Gaming Reports published research notes from Eilers and Krejcik Gaming principal Todd Eilers evaluating International Game Technology, Scientific Games and AGS.
Eilers wrote that he does not expect commercial and tribal casinos to begin reopening until the middle of May, and most won’t return until July.
“We are also assuming that player demand does not immediately return to prior levels and gradually improves throughout the year,” Eilers wrote.
Eilers told investors revenue estimates for the rest of the year for Scientific Games will be off by at least 8 percent, and as much as 20 percent for AGS. He estimated IGT will see a $1.2 billion drop in revenues. However, he believes all three companies will bounce back in 2021.
“Our new model assumes a cash burn in the first half of 2020 and a return to positive free cash flow generation in the second half of 2020,” Eilers said.
Eilers also wrote that IGT and Scientific Games stand to receive a short-term boost from soaring online gaming and social casino play.
In March, Scientific Games announced an undisclosed number of furloughs, and pay and work-hour reductions for other staff. Top executives of several suppliers announced they would forego some or all of their salaries to preserve liquidity.