Market Commentary and Intraday News

WMS Industries falls on 4Q miss, competition

285 days ago

(AP:NEW YORK) Shares of WMS Industries tumbled to their lowest point in nearly eight years on Tuesday as the gaming equipment company's fiscal fourth-quarter net income missed Wall Street's expectations and analysts worried about rising competition.

THE SPARK: Late Monday WMS Industries reported that its net income more than doubled to $22.1 million, or 40 cents per share, from $10.3 million, or 18 cents per share, a year earlier. Taking out 2 cents per share in charges related to legal settlements and a 1 cent benefit for a reduction in bad debt expense, earnings were 41 cents per share.

Revenue fell 4 percent to $195.9 million from $203.2 million.

Analysts expected earnings of 45 cents per share on revenue of $189.1 million, according to a FactSet poll.

The Waukegan, Ill., company also said that it anticipates economic conditions will basically be unchanged over the next year and that customers' capital spending plans will likely stay about flat through the rest of 2012 and into 2013.

THE ANALYSIS: Nomura Equity Research's Harry Curtis cut WMS Industries to "Reduce" from "Neutral" and slashed its price target to $13 from $22, citing growing competition.

"While WMS has regained its footing in its core business, intense competition in product sales and game operations is likely to continue for at least another year," he wrote in a client note.

Steven Wieczynski of Stifel Nicolaus said that the company's vague 2013 outlook could prompt some investors to sell the stock as their near-term patience wanes. He also echoed Curtis' concerns about competition from rivals, saying WMS Industries does not need the pressure while in the midst of its turnaround plan.

But Wieczynski said that the company's stock price still offers an appealing entry point for investors. He maintained a "Buy" rating and reduced its price target to $22 from $26.

"While we can reason with investors who are somewhat discouraged by management's commitment to accelerating investment in its non-core interactive businesses, we continue to get the sense that the trajectory of the company's core businesses, albeit modest, are moving in the right direction," the analyst wrote.

SHARE ACTION: WMS Industries Inc.'s stock dropped $3.22, or 17.6 percent, to $15.04 in afternoon trading. The shares hit a low of $13.90 earlier in the session, the biggest decline since August 2004.

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