Shares of Scientific Games Corp. tumbled to its lowest point in more than three years Jan. 16 as the lottery services supplier reeled from the loss of its third online contract within a month.
Meanwhile, the stock price of Penn National Gaming Inc. rose as an analyst upgraded the company, saying there is little risk its proposed $6.1 billion buyout would fall through.
Shares of Scientific Games sagged $8.70, or 30.9%, to $19.45 at the close of trading Jan. 16. Earlier in the session, the stock fell to $15.87, its lowest point since August 2004. Shares of the company traded as high as the $40 range as recently as October.
On Jan. 15 the company learned that a Pennsylvania online lottery pact was given to Providence, R.I.-based Gtech, according to Lawrence Klatzkin of Jefferies & Co.
"While this is a disappointment, it was not completely unexpected and we believe that, given a 50% discount to current terms, Scientific Games was not willing to fight for the contract given its move toward higher return on invested capital contracts," he wrote in a client note.
The analyst said Scientific Games has not aggressively bid on lower ROI domestic online pacts. However, he reiterated a "Buy" rating based on its international slot machine and instant lottery opportunities.
Scientific Games also includes a wide variety of products for the pari-mutuel wagering industry in its company line. On its Web site, the company claims it interacts "with virtually every race wagering operation in North America and with customers in Asia, South and Central America, Europe, and the Middle East."
Meanwhile, Stifel Nicolaus & Co. analyst Steven Wieczynski cut the company to "Hold" from "Buy" due to near-term growth worries. The analyst cited the latest contract loss, coupled with recent pact losses in South Carolina and West Virginia, saying the contracts had a combined value of about $60 million a year.
He dropped his 2008 profit forecast to $1.46 per share from $1.50 per share and issued a 2009 estimate of $1.62 per share.
Morgan Stanley also downgraded Scientific Games, cutting its rating to "Underweight" from "Overweight."
Shares of Penn National Gaming Inc. rose $1.21, or 2.4%, to $51.41. Over the past year, the stock has traded in a range of $41.50 to $63.68. Lawrence Klatzkin of Jefferies & Co. noted Penn National's stock was recently trading nearly $17 below the buyout price of $67 per share.
Fortress Investment Group LLC and Centerbridge Partners LP made their acquisition offer to Penn National, an operator of casinos and racetracks, in June.
The analyst sees little risk to Fortress and Centerbridge receiving the necessary licensing approvals. He also said in a client note that Deutsche has committed to financing the deal and that the agreement leaves little room for Fortress and Centerbridge to back out.
Klatzkin views Penn's current stock price as a buying opportunity for investors.
He lifted his rating to "Buy" from "Hold," but reduced his price target to $57 from $67 as "the unknown financing climate over the next five months presents an inherent risk."
