Shares of Scientific Games (NASDAQ: SGMS) have rallied sharply to all-time highs through $35.90 since bottoming off its pandemic lows at $3.76 in Q1 2020. We highlighted this stock in the single digits as an overlooked buying opportunity in a MarketBeat original article as part of the restart narrative on April 24, 2020. The culmination of a perfect storm of narratives have surged this stock well over 300% since then. It’s exceeded technical resistance levels trading well ahead of the benchmark S&P 500 index (NYSEARCA: SPY). The digital sportsbook mania fueled by the likes of Penn National Gaming (NASDAQ: PENN) and Draft Kings (NASDAQ: DKNG) is reaching full transparency and has frankly getting ahead of itself. It’s time to ring the register into opportunistic exit levels before the hype loses steam.
Q2 FY 2020 Earnings Release
On July 23, 2020, Scientific Games released its second-quarter fiscal 2020 results for the quarter ending June 2020. The Company reported an earnings-per-share (EPS) loss of (-$2.15) excluding non-recurring items versus consensus analyst estimates for a loss of (-$1.89), missing estimates by (-$.26). Revenues fell (-36.2%) year-over-year (YoY) to $539 million versus $457.59 million consensus analyst estimates. The effects of COVID-19 continued to disrupt casino operations and lower lottery ticket sales globally. On a bright note, casino openings are being phased in with limited capacity. Stay-at-home trend was able to bolster its Digital and SciPlay segment EBITDA by nearly 80% YoY. The Company reduced cash expenses by (-$150 million) YoY and ended the quarter with $1.1 billion in liquidity following its most recent debt offering. The Company noted that 5 of the top 10 performing lotteries in the world are Scientific Game partners. Scientific Games expects U.S. compound annual growth (CAG) of over 65% for iGaming and over 50% for Sports betting. Scientific Games holds 44% market share of iGaming in New Jersey and its platform drives over 60% of Sports betting in the U.K.
Wynn Resorts Partnership Expansion
On Sept. 4, 2020, Wynn Resorts (NASDAQ: WYNN) rolled out its sports betting and casino app in New Jersey with plans to expand to Colorado and Indiana in partnership with Scientific Games.
Caledonia and Co. 34.9% Stake
On Sept. 14, 2020, global gaming investment management firm Caledonia and private long-term institutional investors agreed to purchase a 34.9% stake in Scientific Games from MacAndrews & Forbes at $28 per share. Caledonia and its investors plan to implement growth strategies focusing on digital gaming and sports betting with initiatives on accelerating debt reduction. The Company is restructuring the Board of Directors with industry leaders and advisors as Ron Perelman his MacAndrews & Forbes exits the picture. Caledonia has stakes in Flutter Entertainment (Fan Duel), Aristocrat, and Draft Kings.
Spiking on Air?
Not taking anything away from Caledonia, but Scientific Games receives no financial gain from this deal. While the Company gets the benefit of highly reputable industry players, it doesn’t receive any of the proceeds from the transfer of ownership. The acceleration in share prices anticipate big immediate improvements, consolidation or acquisition, which may be too optimistic. Scientific Games still derives 40% of their revenues from Las Vegas casinos. The gaming recovery initially started strong on pent-up demand but has stagnated. For investors looking for a laggard trade may look to swap into Scientific Games’ top competitor. Investors in Scientific Games have a great opportunity to cash in their chips while shares are still elevated on the hype and speculation.
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SGMS Opportunistic Exit Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for SGMS stock. The monthly rifle chart triggered a stochastic mini pup on the market structure low (MSL) buy above $16.88. The monthly 5-period moving average (MA) support is at the $20.98 Fibonacci (fib) level. The monthly upper Bollinger Bands (BBs) are at $36.04 indicating a “too fast too soon” type move possibly fueled by a short squeeze as well. The weekly rifle chart shows the acceleration blow right through the upper BBs at $33.72 with the 5-period MA support overlapping the $25.67 fib. Prudent investors should consider to unwinding positions into opportunistic exit levels at the $33.92 fib, $36.05 monthly upper BBs, $37.45 fib, and $39.15 fib. Since the shares have spiked so quickly, it’s crucial to keep a downside profit stop if shares fall under the weekly upper BBs at $33.72. This tends to cause gravity to enter the picture like a spaceship reentering the planet’s atmosphere. 
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