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What happened

Shares of International Game Technology (NYSE: IGT) were up 11% as of 10:56 a.m. ET on Thursday following a Bloomberg News report on Wednesday that the company had found a potential buyer for its global gaming division.

So what

The report said private equity firm Apollo Global Management could be a potential acquirer of the gaming business, which could fetch a price between $4 billion and $5 billion, including the assumption of debt.

International Game Technology is a leader in operating lotteries and other gaming experiences. It owns very profitable business segments that in total generated an operating margin of 24% in the first half of 2023.

Management believes its business units are being undervalued by the market. Indeed, the stock trades at a modest forward price-to-earnings ratio of 16.5, but it trades at an even lower price-to-free cash flow multiple of 13.4.

Data by YCharts

In June, IGT announced it was exploring a possible sale, merger, or spin-off of its global gaming and PlayDigital businesses. These were the company’s fastest-growing segments in the second quarter, with global gaming revenue up 15% and PlayDigital up 27%.

Now what

Management said on the Q2 earnings call that the company was on track to meet its 2025 financial targets for lottery, gaming, and PlayDigital. Across the company, management’s target calls for annualized adjusted revenue growth in the middle single digits, with midteens growth in operating profit.

It appears management is potentially on the verge of maximizing the value of these businesses at a time when their momentum is strong. A sale would be a catalyst for the stock, since it is part of management’s plan to reduce costs and debt and deliver more shareholder returns.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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