Is IGT worth $25.9?

TLDR:

• International Game Technology’s estimated fair value is $19.55 based on 2 Stage Free Cash Flow to Equity
• The current share price of $25.88 suggests the stock is potentially 32% overvalued
• The analyst price target for IGT is $32.70, which is 67% more than the estimated fair value

International Game Technology PLC (NYSE:IGT) is potentially overvalued, according to a recent analysis by Simply Wall St. The analysis used a Discounted Cash Flow (DCF) model to estimate the stock’s intrinsic value by projecting its future cash flows and discounting them to today’s value. The estimated fair value of IGT is $19.55, while the current share price is $25.88, suggesting the stock is potentially 32% overvalued. However, the analyst price target for IGT is $32.70, which is 67% more than the estimated fair value.

The analysis used a two-stage DCF model, which takes into account two stages of growth. The first stage is a higher growth period that levels off heading towards the terminal value, captured in the second “steady growth” period. The analysis estimated the next ten years of cash flows for IGT and discounted them to their estimated value in today’s dollars. The present value of the future cash flows was calculated to be $2.5 billion. The Terminal Value, which accounts for all the future cash flows after the ten-year period, was estimated to be $4.5 billion.

The total equity value of IGT was calculated to be $3.9 billion, and when divided by the number of shares outstanding, the approximate intrinsic value per share was found to be $19.55. Compared to the current share price of $25.88, the stock appears to be overvalued. However, it’s important to note that the DCF model has its limitations and is just one valuation metric among many.

The analysis also highlighted some risks and weaknesses of IGT, including the decline in earnings over the past year, an expensive price-to-earnings ratio, and a low dividend compared to the top dividend payers in the Hospitality market. On the other hand, it identified an opportunity for annual earnings to grow faster than the overall American market.

Although the DCF valuation provides a guide to whether a stock is undervalued or overvalued, it should not be the only metric considered when researching a company. Investors should also assess other factors such as industry cyclicality and a company’s capital requirements. Additionally, conducting a SWOT analysis can provide a more comprehensive view of a company’s potential.

Overall, the analysis suggests that IGT is potentially overvalued, but investors should conduct further research and consider other factors before making any investment decisions.