Posted on: March 6, 2024, 02:56h. 

Last updated on: March 6, 2024, 03:47h.

PlayAGS (NYSE: AGS) reported fourth-quarter earnings and revenue that were near the top end of previously disclosed guidance. Looking further out, the slot machine manufacturer can potentially grab market share amid industry consolidation, according to Stifel analyst Jeffrey Stantial.

PlayAGS slot machines, seen above. An analyst believes the company can gain market share this year. (Image: PlayAGS)

That could facilitate more gains for a stock that’s up 8.19% year to date and sharply outperforming major small-cap indexes. Relative to its peer group, PlayAGS is discounted, which could be a source of appeal for some investors when the company is firming its financial position.

The North American  slot market remains hyper-competitive, though we think the recently announced EVRI/IGT may yield market share opportunities for AGS – in particular in mechanical reel where AGS plans to debut their inaugural product late-24,” Stantial wrote in a note to clients. “All-told, we continue to see a highly favorable setup for AGS in 2024 discounted in current valuation.”

Stantial is referencing the $6.2 billion transaction announced last week in which International Game Technology’s (NYSE: IGT) global gaming and PlayDigital units will merge with PlayAGS rival Everi (NYSE: EVRI).

Bullish Outlook for PlayAGS

Citing the company’s strong slot momentum heading into 2024, Stantial reiterated a “buy” rating and $12 price target on PlayAGS. That implies upside of 30.4% from the March 5 close.

The bullish thesis on PlayAGS is supported by factors such as steady wagering trends, a strong product pipeline, and improving relationships with high-level corporate customers, among other catalysts. Additionally, the investment thesis could be supported by the expansion of tribal gaming clients in Florida, Texas, and Oklahoma. Stantial noted the company outperformed rivals such as Konami and Light & Wonder (NASDAQ: LNW) in the fourth quarter in terms of slots sales.

“Relative outperformance is particularly noteworthy given limited contribution from the recently launched Spectra UR49C (where qualitative commentary on initial performance was encouraging),” observed Stantial. “Average selling prices (ASPs) were up +7% Y/Y, also comparing favorably vs. peers reporting thus far (-14% to +10%), with management citing mix tailwinds from the Spectra family (which comprised >80% of Q4 shipments).”

More Catalysts for PlayAGS

In addition to efforts to dramatically reduce leverage, PlayAGS has other catalysts that could be attractive. Those include the aforementioned discounted multiples and strong, multimonth visibility on electronic gaming machine shipments.

Additionally, the guidance for 2024 shipments offered up by PlayAGS management was strong, indicating the company could gain share in certain areas of the slot market. That’s pivotal at a time when operators are adding more gaming machines to casino floors.

“AGS also continues to broaden customer reach (~180 customers sold-to during Q4, up from 150 in Q3), supplementing higher average order size (a function of greater content & hardware diversity). Additionally, management emphasized modest uplift from traction in international markets (largely LatAm) with new form factors,” concluded Stantial.

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