(By Balachander) Deutsche Bank (DB) downgraded rating on shares of Bally Technologies Inc. (NYSE:BYI) to "Hold" from "Buy", citing balanced risk reward.
"We are downgrading...given our view of a difficult operating environment, from which BYI has stayed prudently isolated from given shrewd management decisions and strong content during a precarious time for equipment suppliers," the bank wrote.
DB, which has a price target of $49 on the stock, believes the BYI business can remain resilient over the near to medium term, though industry fundamentals and the current valuation premium will eventually serve as headwinds.
"Given the risk/reward equation we believe exists, we find it more suitable to move to the sidelines here," the bank wrote.
In short, the bank sees few if any cracks in the BYI story at present as we continue to look favorably on the following key aspects: 1) systems traction and pipeline, 2) incremental ship share and expansion unit opportunities, 3) mix driven gaming ops yield growth, and 4) continued share repurchase activity given the solid balance sheet.
"That said we believe current valuation likely puts a range around shares and we expect industry and competitor struggles to eventually catch up with BYI, though we feel the near term is largely stable on this front," DB wrote in a note.
"While we firmly believe BYI deserves its current valuation premium for several reasons, the primary of which being its growth trajectory versus peers as well as our view that competitor forecasts at present appear aggressive, we struggle to see the premium expanding meaningfully from current levels," the bank said.
Las Vegas, Nevada-based Bally Technologies designs, manufactures, operates, and distributes technology-based gaming devices and systems.
Shares, which have been trading in the 52-week range of $24.74 to $49.32, rose 0.47 percent to trade at $44.78 on Thursday.