Analysts applauded a decision by slot machine maker International Game Technology to repurchase up to $1 billion of the company’s outstanding stock over the next three-to-four years, saying the move reflects a confidence in business trends and could boost the value of the manufacturing giant.
Investors seemingly agreed.
Shares of IGT jumped 10 percent on New York Stock Exchange following the announcement of the buy-back program before the markets opened Thursday. The company’s shares closed at $15.12, up $1.90, or 14.37 percent, on the New York Stock Exchange.
IGT has almost 300 million shares of stock on the open market. Based on Wednesday’s closing price, IGT had a market capitalization of almost $4 billion.
“We believe an accelerated buy-back makes sense at current levels, offering investors a compelling value,” Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said in a research note.
IGT, which has corporate offices in Las Vegas and Reno, said it would kick off the repurchasing program when it buys back $400 million of its stock from Goldman Sachs & Co. on June 19.
IGT’s board of directors authorized the program. In a statement, IGT said it would fund the accelerated stock buy-back using cash on hand and borrowings from the company’s revolving line of credit.
Analysts said the stock repurchase program might soothe investors lingering skepticism and uncertainty over the company’s $500 million acquisition of social gaming giant Double Down Casino in February.
On analyst said IGT investors don’t believe the company’s management delivered on its promise to be transparent on the performance of Double Down, the largest free play casino on Facebook.
“Following what continues to be a highly questioned acquisition, we believe this is a major announcement for IGT and it will provide discipline regarding acquisitions and significantly return value to shareholders,” Macquarie Securities gaming analyst Chad Beynon told investors.
Roth Capital Partners gaming analyst Todd Eilers said IGT’s stock price had already accounted for the Double Down purchase. He said the stock repurchase, along with positive news over video lottery terminal sales into Canada, could give the company’s stock price a lift.
“At current levels, we believe the risk-to-to-reward is favorable and the valuation is compelling,” Eilers said.
IGT said it has returned more than $4 billion in cash to shareholders in share repurchases and dividends over the past 10 years.
“These actions demonstrate the board of directors’ confidence and IGT’s continued dedication to responsible capital deployment,” the company said in a statement.
Following the buy-back agreement with Goldman Sachs, the company said the remaining $600 million would be utilized over the next three to four years.
Under the terms of the agreement, IGT will pay Goldman Sachs $400 million on June 19 and will receive initial deliveries of approximately 21 million shares, representing a substantial majority of the shares to be retired over the course of the accelerated stock buyback.
Beynon said IGT has been “fairly timid around repurchases,” spending roughly $100 million recently. In 2008, IGT spent $780 million on stock repurchases and $1.2 billion in 2007.
“Clearly the management change in addition to the market uncertainty were causes for the company’s hesitancy during the period,” Beynon said.
Contact reporter Howard Stutz at email@example.com or 702-477-3871. Follow @howardstutz on Twitter.