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Earnings: Adjusted Q4 profits of $0.48 vs. $0.56 consensus and $0.55 in adjusted EPS for Q4 last year.

Revenue: Down 0.4% to $192.5 million.

According to an analyst from S&P, “replacement sales were short of our forecast, and while we think [the] transition to the new Alpha 2 platform has resulted in some delays, we look for momentum to pick up later in FY11.”

Despite lowering his 2011 EPS to $2.22 from $2.40, he maintained his Buy rating on shares and upped his target by $2 to $38 based on a revised peer P/E analysis.

Comment: On an unadjusted basis, Bally Technologies Inc. (NYSE: BYI) reported blowout EPS of $0.89. However, once you strip out the sale of the Rainbow Casino, the Q was far more modest. FY11 guidance came in at $2.05-$2.40 vs. consensus $2.46, reflecting the realities presented by a still challenging North American replacement environment. As long as casinos remain uncertain of how much business they’ll be able to generate in the medium- and long-term, they will remain reticent to buy too many new machines, pressuring their entire supply chain, of which BYI is a major piece.

Still, it’s important to note that BYI has been generating solid operating momentum and that its healthy product pipeline allowed it to boost its North American market share to 18% from 15% last Q. Furthermore, BYI was able to widen its gross margins to 64.6% from 62.8%. Tight markets will further emphasize the importance of taking share from competitors, and BYI appears to be performing well on that front.

Shares fell nearly 4% after-hours but came back in a big way during regular trading, finishing Friday up more than 5% despite a rather tepid day for the broader market. Trading in BYI was fairly bullish, as the company saw one of its higher-voulme days of the year, particularly noteworthy when you consider Friday was the second-slowest trading day of 2010.

The Street seems to have been able to look past this Q’s miss in favor of strength in the coming year, as the potential for continued market-share gains should be able to push these beat up shares ever higher. The fact that they were able to close out the deal on the Rainbow Casino is also positive in this respect, as it will allow management to focus more upon BYIs core businesses.

If we see a positive tape in the coming week, BYI definitely has the potential to test the $35.80 range, and if it can get through there, a move towards the $38 target set by the aforementioned analyst is not out of the picture.

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Disclosure: No holdings in BYI.

Source: Bally Moves Up on Market Share Gains