Why Scientific Games Corp. Shares Got Smacked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of gaming and lottery services specialist Scientific Games Corp.  plummeted 18% today after its quarterly results and outlook disappointed Wall Street.

So what: The stock has pulled back sharply over the past six months on signs of deteriorating fundamentals, and today's Q1 results -- net loss of $45 million on revenue of $388 million -- only reinforce that trend. While Scientific's top line was bolstered by its recent acquisition of WMS, a mere 7% sales increase in its lottery business suggests that its organic growth trajectory is flattening much faster than expected.

Now what: Looking ahead, management said it remains on track to achieve at least $60 million of cost savings on an annualized run-rate basis by the end of 2014. "Although we are seeing challenging gaming industry conditions that have negatively affected our gaming product sales results, we believe that Scientific Games is relatively well positioned due to the diversity of revenue streams in our lottery and gaming businesses and the opportunities created by our integration efforts," said CEO David Kennedy. Given those industry headwinds and Scientific's still-massive debt load, however, I'd hold out for a much wider margin of safety before betting on it. 

The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

The article Why Scientific Games Corp. Shares Got Smacked originally appeared on Fool.com.

Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story