Is International Game Technology (IGT) a Smart Long-term Buy?

Mittleman Brothers recently released its Q3 2020 Investor Letter, a copy of which you can download here. The Mittleman Global Value Equity Fund – Class P declined 1.4% net of fees (AUD) in the third quarter of 2020, versus a gain of 3.9% in the MSCI ACW Index. You should check out Mittleman Brothers’ top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Mittleman Brothers highlighted a few stocks and International Game Technology (NYSE:IGT) is one of them. International Game Technology (NYSE:IGT) designs and manufactures computerized casino gaming systems. Year-to-date, International Game Technology (NYSE:IGT) stock lost 20.4% and on November 17th it had a closing price of $11.91. Here is what Mittleman Brothers said:

“International Game Technology (IGT), which rose by 25% on reopening optimism, was the second best performer in Q3. Frustratingly, it just lost all of those gains in late October on resurging COVID-19 cases and renewed lockdowns in Italy (which account for 35% of its sales). IGT does slot machines, casino management systems, lottery games and systems (78% market share in the U.S. state lotteries) and (increasingly) sports betting. Under normal conditions, and once COVID-19 subsides, these businesses generate a substantial and largely recurring stream of free cash flow, much of which was paid out as dividends pre-pandemic.

MIM believes a full recovery will happen much faster than analyst consensus expectations that imply a very low multiple of both EBITDA and FCF for such a high margin, stable and growing group of businesses. The pessimism due to IGT’s Italy exposure is vastly overdone at current valuations. At least some analysts acknowledge the prospect of much higher valuation for IGT, with “bull case” views of fair value in the mid to upper $20s (MIM’s target is $29, more than triple the current price of $8.68). MIM’s $29 price target implies 9x EBITDA and 15x FCF of $400M.

On 14 September 2020 an Australian hedge fund, Caledonia, paid a 47% premium to the market price of $19 to buy Ron Perelman’s controlling stake in Scientific Games (SGMS). SGMS rallied further into the mid-$30s after the news as brokerage firms scrambled to raise their price targets. Scientific Games is IGT’s primary competitor in lotteries, slot machines and sports betting. IGT also has a large controlling shareholder in his late 70s, the Italian Marco Drago of private equity firm de Agostini Spa, which owns about 50% of IGT. Caledonia appears to have paid 9.4x EBITDA at $28 for Perelman’s 35% stake in SGMS ($928M to Perelman).”

In Q2 2020, the number of bullish hedge fund positions on International Game Technology (NYSE:IGT) stock decreased by about 8% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t believe in IGT’s growth potential. Our calculations showed that International Game Technology (NYSE:IGT) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.