International Game Technology (IGT), SHFL entertainment Inc (SHFL): Make Gains From Gambling’s ‘Rise of the Machines’

Scientific Games Corp (NASDAQ:SGMS) agreed to acquire WMS Industries (WMS) earlier this year for about $1.5 billion, or $26 in cash per common share. While the acquisition remains subject to a number of conditions, including the receipt of gaming approvals and authorization by WMS shareholders, the companies recently announced they had received notice from the FTC regarding early termination of the deal’s waiting period required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”).  Interestingly, analysts’ average price target on Scientific Games represents a 6-7% upside from current levels, and it’s difficult to be bearish on the WMS merger.

Bally Technologies Inc. (NYSE:BYI) makes video machines, casino management interactive applications, and networked, server-based systems for the global gaming industry. The company recently announced that by leveraging the flexibility of Visionary Solutions’ AVN encoding platform, it can now stream high-quality HD, 1080p resolution video and audio content to gaming areas and hospitality suites. While growth isn’t as impressive as what’s expected of SHFL entertainment Inc (NASDAQ:SHFL), shares of Bally traded at a forward earnings multiple below 14x, third lowest in the gaming activities industry. Hedge fund legend Jim Simons was upping his stake in this company at the end of last year (check out Simons’ newest stock picks).

Of course, what’s in vogue at any given time appears to be a historical crapshoot.  For example, in the mid-eighties, 77% of all casino games were based on Blackjack, compared to about 50% last year. Craps, in 1985 contributed 28% of all table wins, compared to around 9% in 2011. Despite this uncertainty, the companies mentioned above give investors a good way to play an uptick in slot trends.

Disclosure: none

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