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Following its announced intention to acquire the world’s 5th biggest Internet poker network by year’s end, OnGame, Shuffle Master has positioned itself at the forefront of a regulated US online poker market assuming either state or federal legislation becomes a reality.
Still, Barron’s has decided to maintain a “neutral” position regarding Shuffle Master.
While we are impressed by Shuffle Master's ability to drive EGM placements with its new Equinox box (fourth quarter in a row we've seen this and a trend we expect to continue for the remainder of fiscal 2012) as well as its commentary with regards to additional international penetration in fiscal 2012 and fiscal 2013 (Latin America, Australia, and Asia), we believe our current fiscal 2012 estimates factor in this trend, and see valuation as fair in relation to its risk-adjusted growth at current levels. As such, we continue to maintain our Neutral rating.
Our year-end 2012 price target goes to $15 from $12, and is based on applying an 18.5 times multiple to our fiscal 2013 EPS estimate of 82 cents, which implies a price/earnings-to-growth (PEG) of about 0.88 times. Our price target change is driven by a combination of using fiscal 2013 estimated EPS (prior fiscal 2012 estimated EPS) as well as a higher target multiple (18.5 times versus prior 17.0 times), which we believe is justified given Shuffle Master's growth profile over the next two fiscal years.
At current levels, Shuffle Master trades at 21.4 times our fiscal 2012 EPS estimate and 17.8 times our fiscal 2013 EPS estimate, relative to its historical range of 6.4 times to 132.4 times and long-term average of 28.8 times.
The company’s revenue for the quarter came in at $56.1 million, $2.8 million below Barron’s $58.9 million estimate.
- Aaron Goldstein, Gambling911.com
