Scientific Games Rides On Acquisitions, Buys NYX Gaming

Last week, Scientific Games Inc. (NASDAQ:SGMS) announced that it has reached an agreement to acquire Canada-based NYX Gaming Group Ltd. ("NYX") for about $632 million. The company expects to complete the deal by the first quarter of 2018.

Scientific Games is benefiting from its acquisition strategies and innovative product lines. Strategic acquisitions have been a key growth factor for Scientific Games over the years.

We have seen that acquisitions of Bally Technologies (2014),WMS Industries (2013), Parspro and Provoloto (2012), Barcrest Group Limited (2011), Sceptre Leisure Solutions (2010) and GameLogic (2010) have expanded the company’s ability to offer computerized systems and services to the global gaming industry.

Scientific Games also completed the buyout of DEQ Systems in January and Red7Mobile in July, which will help the company to solidify its position, going ahead.

Coming to the NYX deal, the company says the buyout will help Scientific Games to broaden its product pipeline in digital gaming and online lottery markets. Besides, NYX’s sport betting platform OpenBet Sportsbook will further position it well for the online gambling market.

This is important because the online gambling market is expected to emerge as a lucrative business opportunity. Per market research firm, Technavio the global sports betting market will witness CAGR of more than 4% over the 2016-2020 time frame. The firm projects global online gambling market to increase at a CAGR of more than 9% over the same period.

Notably, in the past one year, Scientific Games shares have gained 280.7%, substantially outperforming the industry’s rally of 15.8%.

The company will also be able to cash in on the growing global customer base of NYX. Moreover, management expects the deal to be accretive to earnings in the first year after closing.

Reportedly, Matt Davey, the current Chief Executive Officer of NYX, will supervise Scientific Games’ new Digital Gaming and Sports division, after the completion of the deal.

We believe the company will continue to pursue strategic acquisitions, which will boost its top-line amid stiff competition.

However, the company’s leveraged balance sheet results in significant interest expense. Adding more debt for funding acquisitions will further enhance its indebtedness and weigh on its profitability.

Zacks Rank and Other Key Picks

Currently, Scientific Games has a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Applied Materials (NASDAQ:AMAT) , Activision Blizzard (NASDAQ:ATVI) and Micron Technology (NASDAQ:MU) , all sporting a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Applied Materials, Activision and Micron is currently projected to be 17.1%, 13.6% and 10%, respectively.

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