Scientific Games Reports 4Q Results

Instant lottery ticket provider Scientific Games SGMS reported fourth-quarter results that rounded out a tough year for the firm. Results for the quarter were hurt by unfavorable foreign exchange rates and several one-time charges. The firm continues to keep a watchful eye on expenses, and most of the head winds relating to its contract repricings have been finalized. Further, we are happy to see the firm sell its racing business, which has been a drag on profitability. This divestiture should occur in the first half of 2010. We believe the first half of 2010 will continue to be difficult for the firm, as it is subject to lower discretionary spending by consumers. However, we think the firm stands to benefit from increased gaming revenue as state budget deficits increase. As a result, we are leaving our fair value estimate unchanged.