Internet Gambling and Online Poker Law Changes Eyed: A Look at Casino Gaming Equipment Stocks IGT, SGMS & WMS

At the end of last week, it was revealed that the Obama administration intends to make it easier for US states to legalize Internet poker and certain other online betting – a move that could impact casino gaming equipment stocks like International Game Technology (NYSE: IGT), Scientific Games (NASDAQ: SGMS) and WMS Industries (NYSE: WMS). Specifically, a Justice Department opinion dated September that was just made public would reverse decades of previous government policies to hit operators of online poker sites with civil and criminal charges as the department has long held that online gambling in all forms is illegal under the Wire Act of 1961 – an act that bars wagers via telecommunications that cross state or international borders. However, I. Nelson Rose, a gaming law expert at Whittier Law School, has written on his Gambling and the Law blog that if the Wire Act were to be limited to just bets on sporting events and races, there pretty much aren’t any federal anti-gambling statutes left on the books. Hence and if Americans can gamble from the comfort of their living rooms, should investors or traders consider casino gaming equipment stocks International Game Technology (IGT), Scientific Games (SGMS) and WMS Industries (WMS)? Here is a closer look at all three to help you decide:

International Game Technology (NYSE: IGT)

International Game Technology is a global gaming company specializing in the design, manufacture and marketing of electronic gaming equipment and systems. International Game Technology also has the industry's largest game-to-system game library. Investors should note that for the fiscal 4Q2011, International Game Technology reported a 14% year-over-year increase in revenue from from $474.2 million to $539.8 million and a 168.3% increase in net income to $53.4 million while for fiscal 2011, total revenues rose 2% to $1.95 billion and net income rose 52.4% to $283.6 million. International Game Technology also claims to be “leading the cloud computing transformation in gaming” by offering casino operators ways to optimize their operations and casino floors. On Friday, International Game Technology rose 3.70% to $16.55 (IGT has a 52 week trading range of $13.38 to $19.15 a share) for a market cap of $4.93 billion.

Scientific Games (NASDAQ: SGMS)

Scientific Games is a global supplier of solutions to lottery and gaming organizations worldwide. For 3Q2011, Scientific Games reported relatively flat revenues of $222.7 million verses $221.1 million for the same period last year but the company also reported a net loss of $4.1 million verses net income of $8.7 million for 3Q2010 due to debt and other write-offs or charges or hedging activities that investors with an accounting background should be taking a closer look at. Nevertheless, Scientific Games did report business highlights such as Italian instant ticket retail sales incrasing10.8%, China Sports Lottery instant ticket retail sales increasing 24.1% and Global Draw’s U.K. total gross win and gross win per machine per day increasing 65.4% while management believes they have a recession-resistant business model. On the other hand, I suspect that Scientific Games could be impacted by global currency fluctuations (e.g. the Euro vs. the Dollar) – again, meaning that investors with an accounting background should be looking over the company’s hedging policies and accounting foot notes. On Friday, Scientific Games rose 1.86% to $8.20 (SGMS has a 52 week trading range of $6.50 to $11.27 a share) for a market cap of $755.5 million.

WMS Industries (NYSE: WMS)

WMS Industries serves the global gaming industry by designing, manufacturing and distributing games, video and mechanical reel-spinning gaming machines and video lottery terminals (VLTs). Investors should note that WMS Industries sank 15% towards 52 week lows after reporting lousy fiscal 1Q2012 results. Specifically, WMS Industries reported that revenue fell 17% to $155.6 million while net income sank from $19.5 million to $3.8 million. WMS Industries is restructuring and expects full-year 2012 revenue to be down slightly from 2011 revenues with an improvement in margins. Analysts though noted that the biggest disappointment was WMS Industries' sales of replacement machines with one analyst estimating that its share of the market fell to about 19.5% from 38% for 2010 - meaning either replacement sales for the entire sector are below expectations or that rival International Game Technology had grabbed a big chunk of WMS’s replacement business. On Friday, WMS Industries rose 3.38% to $20.81 (WMS has a 52 week trading range of $16.24 to $48.08 a share) for a market cap of $1.16 billion.

The Bottom Line. Its too early to predict how any plans to reinterpret Internet poker and certain other online betting laws will impact the casino gaming equipment industry while it should also be noted that gaming growth remains strong in Asia. Hence, investors should at least keep an eye on casino gaming equipment stocks International Game Technology (IGT), Scientific Games (SGMS) and WMS Industries (WMS).