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Analysts: IGT is a Smart Bet

1 April 2002

LAS VEGAS –As reported by BusinessWeek: "G. Thomas Baker knows a good bet when he sees one. When his company's stockplunged like almost every other after the September 11 terrorist attacks, the chief executive of International Game Technology (NYSE:IGT) cracked open his corporate piggy bank and repurchased $100 million of the Reno [Nev.] company's shares. The stock has since climbed by 60%.

"…In an industry known more for all-you-can-eat buffets than consistent earnings growth, IGT has been among the best performing gambling stocks. The company is the world's leading maker of slot machines, with a 60% market share. Sales and earnings have more than doubled over the past six years, and its stock has climbed nearly five-fold during that period. The good news is that analysts are expecting more of the same.

"Wall Street forecasts that IGT's earnings per share will climb about 14% this year, to $3.30, according to a survey of 15 brokerage firms by earnings estimate compiler Multex.com.

"…`Better to put your money in IGT stock than in one of their slot machines,' jokes Bruce S. Sherman, chairman of Private Capital Management, a money-management firm in Naples, Fla., that's IGT's largest shareholder. Sherman says his company recently has been adding to its 6.5 million-share IGT position.

"…`We love the stock, but it's not one of those hidden gems anymore,' says John Miller, an analyst at Ariel. `On a valuation basis, it's a little rich.' At a recent price of $60 per share, IGT sells for about 18 times this year's estimated earnings.

"…In the 1980s, the company was among the first to put microprocessors in slot machines in place of the mechanical wheels.

"…IGT typically leases these machines to casinos and takes a cut of gambling revenues in return. Revenues from such arrangements now make up nearly two-thirds of IGT's cash flow.

"More recently, it launched coinless machines that use paper tickets to tally

"…The new technologies and new game ideas -- a game featuring TV personality Regis Philbin is a popular one lately -- helps drive the market for replacement machines.

"…Then there are the new jurisdictions, a big source of IGT's sales over the last two decades. Even though the U.S. macroeconomic outlook is improving, state budgets will likely keep being squeezed because of a variety of factors.

"…Casino gambling is now being considered in eight states, most notably New York, Pennsylvania, and Kentucky.

"Lastly, IGT should benefit from its recent merger with Anchor Gaming, which in addition to cost savings should contribute significantly to earnings per share because Anchor was acquired with IGT stock trading at a higher multiple of earnings.

"…IGT may see slower sales growth in 2002 compared with last year, but longer term, the odds are still in its favor."

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