Q1 Revenues Below Expectations, Movement Back to Recurring Revenue Continues

3/18 - "...most of the revenue shortfall came from lower revenue in for-sale areas, so management is sticking to the shift back to recurring (lease) revenue, even as the transition results in challenging near-term quarters like this one."

"We continue to like the long-term prospects for Shuffle Master and believe refocusing on recurring revenue is the right strategy. We support management’s long-term perspective and believe it will eventually pay off nicely. However, for investors, we believe this payoff is still too unclear and potentially too far away for investor risk tolerance, especially given the difficult tape."

"We are reducing our estimates due to the accelerating
shift to lease (from) for-sale...At $7.00, shares now trade at a 2008 P/E ratio of 29.5 times and at a 2008 EV/EBITDA ratio of 9.6 times. On 2009, P/E and EV/EBITDA multiples are 14.6 and 7.5 times, respectively...While current valuation is attractive, we believe there is still some risk to consensus estimates; without greater visibility into margin stabilization and into success shifting back to recurring revenue, we will stay on the sidelines. We maintain our Market Perform rating."