While, WMS reported record results in its second fiscal quarter, shares of the gaming company have dropped 16%.

Greff adds that the stock price decline “presents an opportunity in front of revenue acceleration starting in the calendar of the second quarter of 2010.”

WMS is poised for growth over the next two years as they wait for regulatory approval to enter the Australia gaming market, where WMS executives say there is significant opportunity.

WMS is also focusing on Illinois as they move forward with a gaming expansion that will allow a tenth casino in the state.

Brean Murray also upgraded his rating on WMS stock to a “buy” on Wednesday with a target price of $51.00.

“With the potential for WMS’s participation base to increase following flattish results over the past two quarters and with the most leverage to industry replacement sales, which should dominate the sales landscape for the next few quarters, we view the recent 20% slide in WMS shares as a compelling investment opportunity.”

WMS opened trading today at $39.42 up $1.43 from yesterday’s close of $37.99.

WMS stock reached a high of $44.21 in mid January and a low of $36.94 at the end of the month.

Under the terms of the agreement, FutureLogic’s GEN2 Universal printer will be the preferred printer in WMS gaming platforms.

The companies have also agreed to combine forces on strategic marketing initiatives and new printer applications for next generation games.

WMS is committed to evolving the casino slot floor to a networked environment to benefit the player experience and has chosen the Gen 2 universal printer based on Futurelogic’s dedication to the advancement of TITO printer and networked gaming technologies.

“FutureLogic’s reputation for innovation, as well as their leadership in the evolution of network-enabled peripherals and their work in supporting our customers’ initiatives, is precisely what we seek in our technology partners,” said Bruce Frey, Vice President of Global Sourcing and Planning for WMS Gaming, Inc.

“We are proud to have entered into this strategic agreement with WMS Gaming, their affiliates, distributors and sales channel partners,” said Nick Micalizzi, FutureLogic’s VP of Domestic Sales & Marketing. “We look forward to supporting their expansion and development programs via the continuous development of world class printing and networked gaming solutions.”

In addition, WMS raised its guidance for fiscal 2010 total revenues to a range of $765 million to $785 million compared with prior annual guidance of $760-to-$780 million and initiated fiscal 2010 third quarter revenue guidance of $195 million to $205 million.

Total revenues increased 6% to a second quarter record $188.9 million.

Gaming operations revenue grew 20%, as the average installed participation footprint increased 9% to a record 10,357 gaming machines and the average daily revenue rose 13% to $75.23 per participation unit, another fiscal second quarter record.

Net income rose to $26.5 million, or $0.44 per diluted share compared to $0.41 per diluted share in the December 2008 quarter, which benefited from a $0.05 per diluted share gain from settlement of trademark litigation and a $0.02 per diluted share benefit from the retroactive reinstatement of the research and development tax credit.

“WMS’ record fiscal second quarter results again highlights the value of our distinctive culture of innovation, emphasis on creating differentiated products and focus on simultaneously advancing our operating execution. Our expanding portfolio of innovative products offer high player appeal, consistently generating high earnings performance for our customers that is driving strong growth in our gaming operations business and overall increases in WMS’ share of the casino slot floor.” said Brian R. Gamache, Chairman and Chief Executive Officer.

WMS will demonstrate products specifically addressing international markets as well as nearly 80 games for the global market.

Many of these games will be featured on the Bluebird2 gaming platform. The Bluebrid2 was debuted for international customers at the IGE 2009 and continues to gain increasing traction in global markets since its introduction in late 2008.

In addition, The Bluebird xD gaming cabinet will also be debuted for international clientele.

The Bluebird xD features engineered advancements in cabinet functionality designed to take advantage of the game content enhancements enabled by networked gaming applications and establishes a new level of player entertainment experience.

“WMS’ success in leveraging our ‘Culture of Innovation’ to drive the development of products that simultaneously deliver measurable value for casino operators and new gaming experiences for players will be readily apparent to attendees at IGE 2010,” said Brian R. Gamache, chairman and CEO of WMS. “Our ability to address the specific needs of an increasing number of international markets with technology platforms and a broader portfolio of games is driving our international market share gains. The result is more WMS and Orion games on casino slot floors around the world than at any time in our history.”

Last month WMS Industries signed a deal with Betson, a coin-operated video game and vending machine distributor to exclusively distribute WMS products to licensed locations such as bars, restaurants, truck stops and fraternal and veterans’ organizations.

Under the terms of the Video Gaming Act all video gaming terminals must be sold through authorized equipment distributors.

Operators are expected to begin installing 40,000 or more VLT’s in late 2010 or early 2011.

The Funding Stop president Edgar Colomb added to the announcement by saying, “We’re thrilled to have created a strategic alliance with partners like Betson and WMS. We anticipate Betson to be licensed quickly in Illinois while WMS is already a well-respected name in the gaming industry. This agreement expands The Funding Stop’s ability to bring value to customers in Illinois.”

The company has noted that gaming operations continue to achieve solid performance and anticipate a rise in year-over-year revenue per day per participation machine and the average installed base in the December 2009 quarter.

Revenue growth for fiscal 2010 is expected to reflect new market opportunities, further anticipated worldwide market share gains and the high level of customer interest for products unveiled at the G2E industry trade show last month.

WMS also reinforces its expectations for ongoing operating margin enhancements due to the firm customer demand for the Bluebird ®2 gaming machines with higher realized average selling prices and further improvement in operating execution.

The game developer is also proactively addressing the next stage of casino gaming floor evolution through its WAGE-NET networked gaming solution, a suite of four platform technologies and system applications designed to increase revenue capabilities and operational efficiency of casinos.

The slot game developer and former pinball machine manufacturer hopes to appeal to younger players through the technology and techniques of video games, 70 inch video screens, 3D graphics, sound effects, interactive games and group competition.

Last month the gaming provider unveiled its new Lord of the Rings video slot game at the G2E convention in Las Vegas, expecting to do just that.

The interactive game allows players to enter a user name and password to store their scores and access their saved games for future play, even at another casino.

Players follow a map through Middle-Earth and take players on an epic journey through the motion picture trilogies storyline. Along the way they unlock new elements of the legendary adventure scoring points and bonus rounds. Lighting bolts flash and strike the earth’s image on the screen while speakers under the seat provide a thundering rumble.

While the game provides the ambiance of a video arcade game the slot machine can payout thousands of dollars.

Industry experts anticipate the video slot machine continuing the company’s success into “interactive gaming”.

According to Chairman Gamache the companies goal is to “create technology advancements … that deliver next generation gaming products with high player-appealing entertainment,” in hopes of developing a younger demographic.

VP of Networked Gaming Engineering and Operations, Mark Pace, accepted the award on behalf of the company at a reception yesterday at the Global Gaming Expo.

WMS is the first recipient of the award intended to recognize the gaming industry product that best exemplifies the highest standard of system and product interoperability on the casino floor.

The Gaming & Leisure Community’s Advisory Board, comprised of industry leaders, judged products and awarded the honors to WMS’s WAGE-NET® networked gaming system.

The gaming solution is a suite of platform technologies and system applications based on open architecture designed to be fully interoperable with other similarly developed systems. The product was designed using industry standard communication protocols developed by the Gaming Standards Association.

Brian R. Gamache, Chairman and CEO, commented, “We are honored to be recognized by industry leaders for our commitment to, and development of, a fully interoperable solution for networked gaming.”

The Illinois based slot machine maker hopes the deal will help fuse the slowly recovering revenue for the company going into the fourth quarter.

The company reported a 26 percent increase in profits for the third quarter, resulting in an unchanging effect on the year’s revenue forecast. Net profit for the companies’ fiscal quarter reached $19.8 million from the $15.7 million reported in the same period last year, although falling short of Wall Streets predictions.

Excluding a charge of 2 cents per share related to convertible notes, WMS stock reported earnings of 36 cents a share matching Wall Streets estimates, as reported by Reuters.

WMS anticipates that the domestic marketplace will continue to be impacted by the low amount of capital budgeted by casino customers for gaming machine purchases in 2009, the continued slow replacement cycle, as well as a lower number of new casino openings compared with the prior-year period.

WMS released a statement saying the lab will be used to debut new technologies and applications, and to demonstrate the effectiveness and efficiency of bringing the entire gambling floor into a networked format.

“Customer interaction is integral to WMS and our product offerings, and our approach in designing the Casino Evolved Advanced Technology Lab was to cultivate a two-way dialog with our customers, regulators and players for addressing the constantly evolving shift in player expectations and the needs of our casino customers,” said WMS President Orrin J. Edidin.

The lab will demonstrate WMS products, including slot machines, account systems, loyalty programs, cashless network and central game management, to prospective customers.

Illinois’ decision to permit video poker at bars and restaurants means orders in the thousands for the supply companies, and new slots at the state race tracks will also increase sales.

Slot machines also seem likely to land at Ohio race tracks soon, and Massachusetts has all but guaranteed it is expanding gambling this fall, with track slots and even a stand-alone casino likely.

JPMorgan noted that the video poker law in Illinois could account for up to 77,000 new games to be installed. North Carolina is also considering reinstating legal video poker just two years after banning it.

While the operators of giant casino resorts see stock value languish, the gaming manufacturers see rosy horizons with the continued wave of new gambling crossing the US.

WMS has managed to increase earnings even while the gaming market overall has shrunk, both by becoming more efficient and by increasing its share of the market. Some analysts have forecast WMS to soon supplant International Game Technology as the industry leader.

But Harry Rady of Asset Management says the stock has already absorbed the effect of WMS overperforming, and a slip backwards in results could send the stock tumbling.

A UNS survey of the casino industry shows a declining expectation of new machine purchases, with only 22 percent of game managers planning on new equipment, as opposed to almost 50 percent last year.

WMS CEO Brian Gamache disputes the doomsayers, asserting that new technology will lead to a large-scale replacement of existing games with new ones, and an increase in legal gaming demand as more states change laws to generate revenue.

The WMS vision would allow for casinos to download new products without hardware exchange, monitor game play, allow for competing against remote games, and retrieve data on play and customer usage.

“Networked gaming will dramatically increase the amount of data and transparency that exists within our customers’ operations,” says WMS President Orrin Edidin.

WMS officials say HCL was selected after an extensive search to find a company with both top technology and experience in a variety of fields at delivering customer realtion management capabilities.

An HCL spokesman said, “… we can add value in the gaming industry and leverage all our past and current expertise in revolutionizing how loyalty management and business intelligence can be applied.”

Goldman Sachs said a poll of casino and gaming personnel showed IGT would drop in share of slot machine floor space from 52 percent to 37 percent. The decline is largely due to the aging of the top IGT game, Wheel of Fortune.

Meanwhile, WMS has introduced the new most popular slot, the Wizard of Oz.

Steven Kent of Goldman Sachs also noted that IGT is heavily leveraged, with a multi-billion dollar credit agreement coming due next year. WMS has substantial cash on hand and no imminent debt payoffs.

Kent upgraded WMS from “Neutral” to “Buy.” He sent IGT in the opposite direction, removing the “Buy” recommendation to “Neutral.”

Gamache explained that the slot machine manufacturer derives the lion’s share of its revenue from regional casinos, which are not suffering the huge business losses that Las Vegas destination casinos are. He said, “The great majority of customers are still buying games with regularity.”

While replacement games makes up most of the current business, Gamache also foresees server-based gaming, allowing slots to download formats from a central server, as a revenue source soon to be tapped by WMS.

He also noted WMS’s improved content on its games and the positive reaction at casinos, where he says WMS games are outperforming competitors’ slots by as much as twenty-five percent.

Joseph Greff of JPMorgan raised his rating of WMS from “Overweight” to “Neutral”, and noted the company was near his price target with limited exposure for the coming quarters.

Greff cited new slot machines in production at WMS, along with prudent limitation of risk, as reasons to single out the casino supplier from the group of gambling stocks which seemingly can’t find a bottom.

The last quarterly report by WMS showed unexpected jumps in revenue and average selling price of products, beating the same quarter of the previous year by forty-eight percent.

This time, the increase was forty-eight percent, with earnings of forty-one cents a share, exceeding even yesterday’s adjusted expectations by five cents. However, a one-time trademark lawsuit settlement did result in a five cent increase.

Revenue increased twelve percent to $178.4 million, over $3 miilion above Wall Street predictions.

Robert LaFleur of Susquehanna Financial Group raised his price target five dollars, to $29 a share, and confirmed his “positive” rating of WMS.

LaFleur said in a client note, “While the overall industry outlook for the equipment business is bleak, the company’s innovative gaming offerings continue to receive strong customer acceptance, which has translated into higher win per days and increased ship share.”

Gaming industry analysts are predicting that WMS profits may beat early forecasts. Joseph Greff of JPMorgan leads a survey of investment analysts that are expecting earnings per share at thirty-six cents, beating early estimates of between thirty-two and thirty-four cents.

Greff said in a client note, “Our sense from speaking to our channel checks on casino floors, is that WMS’s new titles have and should continue to drive solid win per unit per day performance within the gaming operations segment.”

Release of new games that have performed well and the company’s limited exposure to the meltdown of the large Las Vegas casinos are seen as keys to the increased profitability.

In its October report on fiscal first-quarter results, WMS announced a forty-one percent increase in profit, due to a sales increase of better than ten percent.

The manufacturer of video lottery terminals and other gaming machines was voted by 135 Motley Fool members as likey to outperform the Standards and Poor Index, while only 11 saw the company as an underperformer. Wall Street exclusive Fool members voted 11 to 1.

Both strong operating margin and high estimated five-year growth led the experts to favor WMS. Certainly, the continuing worldwide expansion of video lottery terminal usage can only help the company advance.

As major casino operators continue to feel the economic effects of fewer tourists, local racinos and slot parlors should increase their market share, and this falls directly into the plans of WMS. Carrying strong numbers, with bright industry prospects, makes it no wonder that Motley Fool sees WMS in such a positive light.