THACKERVILLE, Oklahoma – AGS CEO David Lopez isn’t happy with the gaming equipment manufacturer’s stock price, which has declined roughly 28 percent in the last three months.
Neither is the investment community.
However, analysts attending last week’s GameOn conference at the WinStar World resort said the presentations and discussions presented a narrative that doesn’t reflect the company’s current price per share.
An AGS sales executive shows off a slot product to a customer at GameOn. (Photo by Howard Stutz)
“In our view, AGS has arguably the best corporate culture in the industry and continues to attract talent and orders as people want to work there and customers want them to win,” Macquarie Securities gaming analyst Chad Beynon said in a research note following the conference.
“Obviously, performance is paramount, but with a strong pipeline, good performance and an outstanding culture, we don’t think the momentum should slow,” Beynon said.
SunTrust Bank gaming analyst Barry Jonas said the conference “reinforces our view that nothing is broken in the story. Management is clearly frustrated by recent stock performance and evaluating levers to pull while continuing to execute on its growth strategy.”
AGS CEO David Lopez
Lopez, 44, AGS’s CEO since 2014, laid out the Las Vegas-based company’s financial performance in the past year at the outset of the conference – revenues up 35 percent, cash flow up 27 percent, and more than two years of industry-leading casino-owned domestic game performance. AGS has also entered several new markets, including two Canadian provinces, Massachusetts, Ohio, Pennsylvania and the Philippines.
Lopez highlighted the company’s commitment to innovation, including more than 700 patents and trademarks, five game development studios, and 244 research and development employees.
Beynon told investors AGS’s “unique corporate culture” has helped the company draw casino and technology professionals.
Nearly 100 AGS customers – casino executives and managers who decide what games are on their respective slot machine and table game floors – attended GameOn and came away with an optimistic view.
“Most of our discussions with slot managers at GameOn (and outside of the conference) remain positive on AGS’s dedicated gamblers focused slot product and its performance,” Jonas wrote.
Macquarie Securities gaming analyst view an AGS slot machine at GameOn. (Photo by Howard Stutz)
Beynon said growth potential is on the horizon for AGS. Illinois passed a gaming expansion effort that could see up 35,000 new slot machines enter the market over the next few years.
The Illinois news is a positive for all gaming equipment suppliers, Beynon added, but beneficial to AGS.
“We expect AGS’ market-share gain to continue with a solid product offering, new market penetration and existing orders/backlog,” Beynon wrote. “As such, we view upcoming quarters (slot results) and slot surveys as major catalysts for the company’s ability to take share in North America.”
On Friday, AGS’s stock price closed at $18.75 on the New York Stock Exchange, far below its 52-week high of $32.80 on Sept. 4. The company’s shares flew up 24 percent last year following its January initial public offering.
Lopez, who previously served as CEO of Global Cash Access and COO of Shuffle Master, jokingly blamed the appointment of former American Gaming Association CEO Geoff Freeman to the company’s board last September as a reason for the stock price drop. In all seriousness, he wasn’t sure why shares have dipped with the performing well financially.
Lopez hinted, however, at evaluating a stock repurchase authorization. Jonas told investors that move wasn’t imminent.
AGS held the conference at WinStar World to display its commitment to the Chickasaw Nation. In March, AGS and the tribe renewed a long-term contract that secured an installed base of more than 3,200 games in Chickasaw’s 22 Oklahoma casinos. WinStar has 8,500 slot games, of which 800 are provided by AGS.
The contract extension eliminated an overhang for AGS. The contract’s status was often brought up by analysts on quarterly earnings conference calls.
Beynon expects the company’s market share to increase, which might ultimately reverse the stock price trend.
“After spending time with customers and the company, we don’t believe there are any red flags and we believe the current valuation provides a unique opportunity for a growth story,” Beynon wrote. “The combination of strong leadership, good internal corporate culture and smart business decisions will keep AGS on its path.”
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
