Earnings

Critical Comparison: International Game Technology PLC (IGT) vs. Everi Holdings Inc. (EVRI)

International Game Technology PLC (NYSE:IGT) shares are up more than 7.64% this year and recently increased 0.04% or $0.01 to settle at $27.48. Everi Holdings Inc. (NYSE:EVRI), on the other hand, is up 254.84% year to date as of 12/05/2017. It currently trades at $7.61 and has returned -12.30% during the past week.

International Game Technology PLC (NYSE:IGT) and Everi Holdings Inc. (NYSE:EVRI) are the two most active stocks in the Gaming Activities industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect IGT to grow earnings at a -14.68% annual rate over the next 5 years. Comparatively, EVRI is expected to grow at a 20.00% annual rate. All else equal, EVRI’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 20.04% for Everi Holdings Inc. (EVRI). IGT’s ROI is 5.50% while EVRI has a ROI of -14.80%. The interpretation is that IGT’s business generates a higher return on investment than EVRI’s.

Cash Flow 




The value of a stock is simply the present value of its future free cash flows. On a percent-of-sales basis, IGT’s free cash flow was 0% while EVRI converted -0% of its revenues into cash flow. This means that, for a given level of sales, IGT is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. IGT has a current ratio of 0.80 compared to 1.00 for EVRI. This means that EVRI can more easily cover its most immediate liabilities over the next twelve months.

Valuation

IGT trades at a forward P/E of 19.30, a P/B of 2.11, and a P/S of 1.13, compared to a P/S of 0.57 for EVRI. IGT is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. IGT is currently priced at a -13.04% to its one-year price target of 31.60. Comparatively, EVRI is -33.83% relative to its price target of 11.50. This suggests that EVRI is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.70 for IGT and 1.50 for EVRI, which implies that analysts are more bullish on the outlook for IGT.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. IGT has a short ratio of 1.79 compared to a short interest of 3.00 for EVRI. This implies that the market is currently less bearish on the outlook for IGT.

Summary

Everi Holdings Inc. (NYSE:EVRI) beats International Game Technology PLC (NYSE:IGT) on a total of 8 of the 14 factors compared between the two stocks. EVRI is more profitable, higher liquidity and has lower financial risk. In terms of valuation, EVRI is the cheaper of the two stocks on an earnings, book value and sales basis, EVRI is more undervalued relative to its price target. Finally, CNP has better sentiment signals based on short interest.

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