International Game Technology is Well Worth the Gamble With headwinds in its favor tied to the legalization of online gaming and sports betting, IGT could easily push past Wall Street's latest targets.

If International Game Technology PLC (NYSE: IGT) were a slot machine, it would be showing three diamonds. The stock is up more than 60% from its September 2022 low and on the move following a sparkling third-quarter performance.

As far as reopening plays go, the electronic gaming equipment maker is proving to be a diamond in the rough. While most airlines and restaurants experience bumpy recoveries, casinos are booming.

According to the American Gaming Association, the U.S. casino industry had its best quarter ever in Q3. Commercial casino operators hauled in more than $15 billion as consumers continued to spend on experiences in the face of elevated gas and grocery prices. And since this excludes revenue at tribal casinos, the overall figure is likely much higher.

Americans' willingness to visit casinos during economic weakness is welcomed news for IGT. Casinos are more likely to spend on new slot machines and table games when business is good. This along with the emergence of online gaming was evident in the company's latest report.

How Were IGT's Third Quarter Financial Results?

IGT reported an 8% year-over increase in third-quarter revenue. Leading the way was the Global Gaming division, which recorded a 31% jump in revenue as casinos reopened and reactivated installed equipment. IGT generates revenue not only from new equipment sales, but also from various maintenance and service streams. Revenue was down 4% in the Global Lottery business.

Third quarter earnings per share (EPS) came in at $0.43, which marked a 13% improvement from the prior year period. Both revenue and EPS topped Wall Street expectations.

As the income statement strengthened, so too did the balance sheet. IGT ended the period with $5.1 billion in net debt, a 16% year-over-year decline. Lower debt is a positive not only because it reduces interest expense, but also improves the company's chances of securing additional funding to pursue organic growth or M&A opportunities. At 3.1x, IGT's net debt leverage ratio is the lowest it has ever been. This is nothing short of remarkable considering what it endured during the early pandemic.

IGT wasn't the only one that had a good third quarter. In September 2022, one lucky player at Foxwoods Resort Casino in Connecticut won over $1.2 million playing IGT's Wheel of Fortune Pink Diamond slot machine. Given the Wheel of Fortune franchise has awarded more than 1,100 millionaires since its 1996 inception, it's easy to see why casino operators (and their visitors) consider these must-have machines.

What is the Outlook for IGT?

Management maintained its 2022 revenue forecast of $4.1 billion to $4.2 billion, with $1 billion expected in the current quarter. At the midpoint, the full-year outlook represents minimal growth beyond 2021 levels. But some growth off a strong base beats a reversion to 2020 levels as has been commonplace in other reopening industries. In 2021, IGT's revenue surged 31% and it swung from a deep loss to a big profit.

Longer-term, the mid-cap company has a pair of aces in the hole that are expected to complement the traditional gaming equipment business. Online gaming is becoming a bigger part of the mix as states legalize Internet-based casinos. IGT's suite of online gaming products gives casinos a cost-friendly alternative to developing an online gaming platform in-house.

Sports betting is the real kicker in the IGT growth story. The company's sports betting solutions similarly represent a quick way to enter the market — and avoid being late to the game.

Will IGT Stock Keep Trending Higher?

IGT is a three-headed growth monster with promising opportunities in land-based casinos, online gambling and sports betting. Having a trio of diversified growth drivers in hand should keep investors coming to the tables.

Another aspect of the investment that could keep buyers interested is the dividend which was reinstated late last year. IGT presently has a 3.3% forward yield that is among the best in the consumer discretionary sector. This gives the stock a rare combination of growth and income that has been hard to come by in the market.

Of course, a major economic recession could dent people's enthusiasm for in-person or online gaming. Thus far, Americans' appetite for a night out at the casino has been resilient, though, and the stickiness of this trend will be a key theme to watch. If it recedes, expect IGT's ascent to do the same. A setback in regulatory approvals could also slow the stock's roll.

Since the Q3 report, a few sell-side analysts have weighed in on where IGT goes from here. The price target range of $25 to $29 implies limited upside after last week's high volume gapper, a reflection of the uncertain economic outlook and tough market for growth names.

Yet with long-term secular headwinds in its favor tied to the legalization of online gaming and sports betting, over time IGT could easily push past Wall Street's latest targets. Any macro-related weakness would make the stock worth a roll of the dice.