Intrinsic value of Scientific Games Corp - SGMS

Previous Close

$22.52

  Intrinsic Value

$8.99

stock screener

  Rating & Target

str. sell

-60%

Previous close

$22.52

 
Intrinsic value

$8.99

 
Up/down potential

-60%

 
Rating

str. sell

We calculate the intrinsic value of SGMS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 2.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.24
  6.12
  6.01
  5.91
  5.82
  5.73
  5.66
  5.59
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
Revenue, $m
  3,619
  3,884
  4,160
  4,447
  4,745
  5,055
  5,378
  5,714
  6,063
  6,428
  6,807
  7,203
  7,616
  8,047
  8,498
  8,968
  9,460
  9,974
  10,511
  11,074
  11,662
  12,279
  12,924
  13,600
  14,308
  15,050
  15,828
  16,644
  17,498
  18,395
Variable operating expenses, $m
  3,115
  3,304
  3,500
  3,705
  3,917
  4,138
  4,368
  4,607
  4,856
  5,115
  4,848
  5,130
  5,424
  5,731
  6,052
  6,387
  6,737
  7,103
  7,486
  7,887
  8,306
  8,745
  9,205
  9,686
  10,190
  10,719
  11,273
  11,854
  12,462
  13,101
Fixed operating expenses, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Total operating expenses, $m
  3,114
  3,303
  3,499
  3,704
  3,916
  4,137
  4,367
  4,606
  4,855
  5,114
  4,847
  5,129
  5,423
  5,730
  6,051
  6,386
  6,736
  7,102
  7,484
  7,885
  8,304
  8,743
  9,203
  9,684
  10,188
  10,717
  11,271
  11,852
  12,460
  13,099
Operating income, $m
  505
  582
  661
  744
  829
  919
  1,012
  1,108
  1,209
  1,314
  1,960
  2,074
  2,193
  2,317
  2,447
  2,582
  2,724
  2,872
  3,027
  3,189
  3,358
  3,535
  3,721
  3,916
  4,120
  4,333
  4,557
  4,792
  5,038
  5,296
EBITDA, $m
  1,448
  1,554
  1,665
  1,779
  1,898
  2,023
  2,152
  2,286
  2,426
  2,571
  2,723
  2,881
  3,047
  3,219
  3,399
  3,587
  3,784
  3,989
  4,204
  4,429
  4,665
  4,911
  5,169
  5,440
  5,723
  6,020
  6,331
  6,657
  6,999
  7,357
Interest expense (income), $m
  622
  605
  424
  461
  499
  538
  580
  623
  667
  714
  762
  812
  865
  920
  977
  1,036
  1,099
  1,164
  1,232
  1,303
  1,377
  1,455
  1,536
  1,622
  1,711
  1,804
  1,902
  2,005
  2,112
  2,225
  2,343
Earnings before tax, $m
  -100
  158
  200
  245
  291
  339
  389
  441
  495
  552
  1,148
  1,210
  1,274
  1,341
  1,411
  1,484
  1,560
  1,640
  1,724
  1,811
  1,903
  1,999
  2,100
  2,205
  2,315
  2,431
  2,552
  2,679
  2,813
  2,952
Tax expense, $m
  0
  43
  54
  66
  79
  92
  105
  119
  134
  149
  310
  327
  344
  362
  381
  401
  421
  443
  465
  489
  514
  540
  567
  595
  625
  656
  689
  723
  759
  797
Net income, $m
  -100
  115
  146
  179
  212
  247
  284
  322
  362
  403
  838
  883
  930
  979
  1,030
  1,083
  1,139
  1,197
  1,258
  1,322
  1,389
  1,459
  1,533
  1,610
  1,690
  1,775
  1,863
  1,956
  2,053
  2,155

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  8,300
  8,909
  9,542
  10,200
  10,884
  11,595
  12,335
  13,105
  13,907
  14,742
  15,613
  16,521
  17,469
  18,457
  19,490
  20,569
  21,697
  22,875
  24,108
  25,399
  26,749
  28,162
  29,643
  31,193
  32,817
  34,519
  36,303
  38,173
  40,134
  42,190
Adjusted assets (=assets-cash), $m
  8,300
  8,909
  9,542
  10,200
  10,884
  11,595
  12,335
  13,105
  13,907
  14,742
  15,613
  16,521
  17,469
  18,457
  19,490
  20,569
  21,697
  22,875
  24,108
  25,399
  26,749
  28,162
  29,643
  31,193
  32,817
  34,519
  36,303
  38,173
  40,134
  42,190
Revenue / Adjusted assets
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
Average production assets, $m
  3,365
  3,612
  3,869
  4,136
  4,413
  4,702
  5,002
  5,314
  5,639
  5,978
  6,331
  6,699
  7,083
  7,484
  7,903
  8,340
  8,798
  9,276
  9,776
  10,299
  10,846
  11,419
  12,019
  12,648
  13,307
  13,997
  14,720
  15,479
  16,274
  17,107
Working capital, $m
  358
  385
  412
  440
  470
  500
  532
  566
  600
  636
  674
  713
  754
  797
  841
  888
  937
  987
  1,041
  1,096
  1,155
  1,216
  1,279
  1,346
  1,417
  1,490
  1,567
  1,648
  1,732
  1,821
Total debt, $m
  6,325
  6,874
  7,443
  8,036
  8,651
  9,291
  9,957
  10,650
  11,372
  12,124
  12,908
  13,725
  14,578
  15,468
  16,397
  17,368
  18,383
  19,444
  20,554
  21,715
  22,930
  24,202
  25,534
  26,930
  28,391
  29,923
  31,529
  33,212
  34,977
  36,827
Total liabilities, $m
  7,470
  8,018
  8,588
  9,180
  9,795
  10,435
  11,101
  11,795
  12,516
  13,268
  14,052
  14,869
  15,722
  16,612
  17,541
  18,512
  19,527
  20,588
  21,698
  22,859
  24,074
  25,346
  26,678
  28,074
  29,536
  31,067
  32,673
  34,356
  36,121
  37,971
Total equity, $m
  830
  891
  954
  1,020
  1,088
  1,159
  1,233
  1,311
  1,391
  1,474
  1,561
  1,652
  1,747
  1,846
  1,949
  2,057
  2,170
  2,288
  2,411
  2,540
  2,675
  2,816
  2,964
  3,119
  3,282
  3,452
  3,630
  3,817
  4,013
  4,219
Total liabilities and equity, $m
  8,300
  8,909
  9,542
  10,200
  10,883
  11,594
  12,334
  13,106
  13,907
  14,742
  15,613
  16,521
  17,469
  18,458
  19,490
  20,569
  21,697
  22,876
  24,109
  25,399
  26,749
  28,162
  29,642
  31,193
  32,818
  34,519
  36,303
  38,173
  40,134
  42,190
Debt-to-equity ratio
  7.620
  7.720
  7.800
  7.880
  7.950
  8.010
  8.070
  8.130
  8.180
  8.220
  8.270
  8.310
  8.350
  8.380
  8.410
  8.440
  8.470
  8.500
  8.530
  8.550
  8.570
  8.590
  8.610
  8.630
  8.650
  8.670
  8.680
  8.700
  8.710
  8.730
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -100
  115
  146
  179
  212
  247
  284
  322
  362
  403
  838
  883
  930
  979
  1,030
  1,083
  1,139
  1,197
  1,258
  1,322
  1,389
  1,459
  1,533
  1,610
  1,690
  1,775
  1,863
  1,956
  2,053
  2,155
Depreciation, amort., depletion, $m
  943
  973
  1,004
  1,036
  1,069
  1,104
  1,140
  1,178
  1,217
  1,258
  763
  807
  853
  902
  952
  1,005
  1,060
  1,118
  1,178
  1,241
  1,307
  1,376
  1,448
  1,524
  1,603
  1,686
  1,774
  1,865
  1,961
  2,061
Funds from operations, $m
  842
  1,088
  1,150
  1,214
  1,282
  1,351
  1,424
  1,500
  1,578
  1,660
  1,601
  1,690
  1,783
  1,880
  1,982
  2,088
  2,199
  2,315
  2,436
  2,563
  2,696
  2,835
  2,981
  3,134
  3,293
  3,461
  3,637
  3,821
  4,014
  4,216
Change in working capital, $m
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  81
  85
  89
Cash from operations, $m
  817
  1,061
  1,123
  1,186
  1,252
  1,321
  1,392
  1,466
  1,544
  1,624
  1,563
  1,651
  1,742
  1,838
  1,937
  2,041
  2,150
  2,264
  2,383
  2,507
  2,638
  2,774
  2,917
  3,067
  3,223
  3,388
  3,560
  3,740
  3,929
  4,128
Maintenance CAPEX, $m
  -377
  -405
  -435
  -466
  -498
  -532
  -566
  -603
  -640
  -679
  -720
  -763
  -807
  -853
  -902
  -952
  -1,005
  -1,060
  -1,118
  -1,178
  -1,241
  -1,307
  -1,376
  -1,448
  -1,524
  -1,603
  -1,686
  -1,774
  -1,865
  -1,961
New CAPEX, $m
  -239
  -247
  -257
  -267
  -277
  -288
  -300
  -312
  -325
  -339
  -353
  -368
  -384
  -401
  -419
  -437
  -457
  -478
  -500
  -523
  -547
  -573
  -600
  -629
  -659
  -690
  -723
  -758
  -795
  -834
Cash from investing activities, $m
  -616
  -652
  -692
  -733
  -775
  -820
  -866
  -915
  -965
  -1,018
  -1,073
  -1,131
  -1,191
  -1,254
  -1,321
  -1,389
  -1,462
  -1,538
  -1,618
  -1,701
  -1,788
  -1,880
  -1,976
  -2,077
  -2,183
  -2,293
  -2,409
  -2,532
  -2,660
  -2,795
Free cash flow, $m
  201
  409
  431
  453
  476
  501
  526
  551
  578
  606
  490
  520
  551
  583
  617
  652
  688
  726
  765
  807
  849
  894
  941
  990
  1,041
  1,094
  1,150
  1,208
  1,269
  1,333
Issuance/(repayment) of debt, $m
  -2,711
  548
  570
  592
  616
  640
  666
  693
  722
  752
  784
  817
  853
  890
  929
  971
  1,015
  1,061
  1,110
  1,161
  1,215
  1,272
  1,332
  1,395
  1,462
  1,532
  1,606
  1,683
  1,765
  1,850
Issuance/(repurchase) of shares, $m
  3,394
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  683
  548
  570
  592
  616
  640
  666
  693
  722
  752
  784
  817
  853
  890
  929
  971
  1,015
  1,061
  1,110
  1,161
  1,215
  1,272
  1,332
  1,395
  1,462
  1,532
  1,606
  1,683
  1,765
  1,850
Total cash flow (excl. dividends), $m
  884
  957
  1,000
  1,045
  1,092
  1,141
  1,192
  1,245
  1,300
  1,358
  1,274
  1,337
  1,404
  1,473
  1,546
  1,623
  1,703
  1,787
  1,875
  1,968
  2,065
  2,166
  2,273
  2,385
  2,503
  2,626
  2,756
  2,891
  3,034
  3,184
Retained Cash Flow (-), $m
  -3,394
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -84
  -87
  -91
  -95
  -99
  -103
  -108
  -113
  -118
  -123
  -129
  -135
  -141
  -148
  -155
  -162
  -170
  -178
  -187
  -196
  -206
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  -2,510
  896
  937
  979
  1,024
  1,070
  1,118
  1,168
  1,220
  1,275
  1,187
  1,246
  1,309
  1,374
  1,443
  1,515
  1,590
  1,669
  1,752
  1,839
  1,930
  2,025
  2,125
  2,230
  2,340
  2,456
  2,577
  2,704
  2,838
  2,978
Discount rate, %
  15.20
  15.96
  16.76
  17.60
  18.48
  19.40
  20.37
  21.39
  22.46
  23.58
  24.76
  26.00
  27.30
  28.66
  30.09
  31.60
  33.18
  34.84
  36.58
  38.41
  40.33
  42.35
  44.46
  46.69
  49.02
  51.47
  54.05
  56.75
  59.59
  62.57
PV of cash for distribution, $m
  -2,179
  667
  589
  512
  439
  369
  305
  248
  197
  153
  104
  78
  57
  40
  28
  19
  12
  8
  5
  3
  2
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Scientific Games Corporation is a developer of technology-based products and services and associated content for the gaming, lottery and interactive gaming industries. Its segments include Gaming, Lottery and Interactive. Its portfolio includes gaming machines and game content, casino management systems, table game products and services, instant and draw-based lottery games, server-based gaming and lottery systems, sports betting technology, lottery content and services, loyalty and rewards programs, interactive gaming and social casino solutions. Gaming segment designs, develops, manufactures, markets and distributes a portfolio of gaming products and services. Lottery segment consists of its systems-based services and product sales business and its instant games business. Its Interactive business segment includes social (non-wagering) gaming and interactive real-money gaming (RMG). Its games are available on Facebook, Amazon.com, the Apple app store and Android app on Google play.

FINANCIAL RATIOS  of  Scientific Games Corp (SGMS)

Valuation Ratios
P/E Ratio -5.6
Price to Sales 0.7
Price to Book -1
Price to Tangible Book
Price to Cash Flow 4.7
Price to Free Cash Flow 13.6
Growth Rates
Sales Growth Rate 4.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -15.7%
Cap. Spend. - 3 Yr. Gr. Rate 10.5%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity -414.5%
Total Debt to Equity -417%
Interest Coverage 0
Management Effectiveness
Return On Assets 1.4%
Ret/ On Assets - 3 Yr. Avg. -3.7%
Return On Total Capital -5.5%
Ret/ On T. Cap. - 3 Yr. Avg. -9.3%
Return On Equity 20.6%
Return On Equity - 3 Yr. Avg. 28%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 61.6%
Gross Margin - 3 Yr. Avg. 58%
EBITDA Margin 30.6%
EBITDA Margin - 3 Yr. Avg. 10.5%
Operating Margin 5.4%
Oper. Margin - 3 Yr. Avg. -14.3%
Pre-Tax Margin -16.6%
Pre-Tax Margin - 3 Yr. Avg. -35.2%
Net Profit Margin -12.3%
Net Profit Margin - 3 Yr. Avg. -25.3%
Effective Tax Rate 26.1%
Eff/ Tax Rate - 3 Yr. Avg. 32.2%
Payout Ratio 0%

SGMS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SGMS stock intrinsic value calculation we used $3363 million for the last fiscal year's total revenue generated by Scientific Games Corp. The default revenue input number comes from 0001 income statement of Scientific Games Corp. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SGMS stock valuation model: a) initial revenue growth rate of 7.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 15.2%, whose default value for SGMS is calculated based on our internal credit rating of Scientific Games Corp, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Scientific Games Corp.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SGMS stock the variable cost ratio is equal to 87.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $-1 million in the base year in the intrinsic value calculation for SGMS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.7% for Scientific Games Corp.

Corporate tax rate of 27% is the nominal tax rate for Scientific Games Corp. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SGMS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SGMS are equal to 93%.

Life of production assets of 8.3 years is the average useful life of capital assets used in Scientific Games Corp operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SGMS is equal to 9.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-2463.2 million for Scientific Games Corp - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 92.140 million for Scientific Games Corp is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Scientific Games Corp at the current share price and the inputted number of shares is $2.1 billion.

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