Recent analysts opinions have been conflicting. While the Street has upgraded it to hold, Zacks had downgraded it to strong sell. While some analysts are positive about the fact that the company is entering into new agreements, others are expecting margin pressures due to the deals. The company' joint venture entity (Northstar New Jersey Lottery Group) recently signed a 16 year agreement with New Jersey Lottery to provide marketing, sales and other services. Earlier, SGMS had signed a five year contract with the South Carolina Education Lottery to provide instant ticket and cooperative services. The fact that these contracts keep happening is good for the company. As per analysts, this reflects that it is able to take advantage of changes in the lottery industry like more 'involvement of private vendors in state lottery management, higher prize payouts and introduction of tiered pricing for national jackpot games'. It is also anticipated that these deals may adversely affect the profitability of the company in the short term due to product development expenses. Further, increase in regulatory, professional fees and other expenses related to the WMS acquisition will also add to the margin pressure. In addition, the Markman hearing date in the patent infringement lawsuit filed by MGT Capital Investments (MGT) against WMS subsidiary has been fixed. That will remain an overhang going forward. However, the stock has done great for the investors over the last few months. It is up about 45% in the last two months, and has appreciated by 32% on a 52 week basis. The relatively poor earnings did not matter much, and the uptrend has only strengthened after that. Ultimately, what is important is the returns got by the investors. So full marks to the stock so far. If the market holds on, it may even go higher. However, the stretched fundamentals have to be kept at the back of the mind.
