Scientific Games Corporation [SGMS] Rallies after the Entry of Strategic Investors

Scientific Games Corporation [NASDAQ: SGMS] is one of the biggest gainers this afternoon and is up by over 40%. This follows the company’s announcement that MacAndrews & Forbes were selling 34.9% in the company to a group of institutional investors.

They are selling the stake at $28 a share. On top of that, the company announced that it was reorganizing its board of directors in a move that would see the inclusion of Jamie Odell and Toni Korsanos as executive chairman and the executive vice-chairman respectively.

The excitement around this stock comes from the nature of the buyers for the MacAndrew & Forbes shares. The company announced that the stake was being sold to gambling industry investors that include Caledonia. This has a number of positive implications:

Expertise  

By bringing in institutional investors that have expertise in gambling, the company can leverage this to grow its market share, and revenues. This could see investors keep bidding up the stock up in the near-term, in anticipation of a jump in price.

In the long run, the expertise and market experience of the institutional investors are likely to drive up the company’s intrinsic value. The company has already stated that it would use the deal to start the implementation of a transformative strategy that would see it grow shareholder value in the long run.

The capital to grow its market

The company has stated that part of its strategy is to focus on digital gaming, and sports betting. The company is aware that these lucrative markets are dominated by DraftKings and FanDuel. As such, it aims to take aggressive measures to penetrate this market.

This requires both money and social capital, and the company will benefit from the monetary and social capital of the institutional investors to get into this market. Given how lucrative the sports gaming market is, the company’s long term value stands to grow. In the short-term, the company also stands to benefit as investors take positions in anticipation of the company’s intrinsic value in the long run.

With all these factors at play, this stock is uniquely positioned to grow in value. Externally, the value of this stock could benefit from the discovery of a COVID-19 vaccine, as it would drive up the entire market. It would also lead to a jump in consumer spending, which is key to driving up consumption.

About Scientific Games Corporation

Scientific Games Corporation is a gaming technology company. It makes electronic gaming machines, and server gaming systems.