On Thursday, Goldman Sachs initiated coverage on Light & Wonder (LNW:AU) stock with a Buy rating and a price target of AUD190.00. The investment firm's analysis indicates that the global gaming company is well-positioned for growth, particularly with its operations in North America.
According to Goldman Sachs, Light & Wonder is expected to meet its forward-year 2025 adjusted earnings before interest, taxes, depreciation, and amortization (AEBITDA) target of US$1.4 billion, which is slightly above the Visible Alpha consensus. This optimistic forecast is based on the company's market share gains in North America, where it is anticipated to grow from approximately 16% to over 20% in the medium term.
The firm's confidence in Light & Wonder is bolstered by the success of its recently launched games in Australia and New Zealand. This success is seen as a precursor to potential growth in the North American market, which is larger and has significant potential for market share consolidation.
Goldman Sachs also highlighted the company's increased research and development spending relative to revenue, which is expected to contribute to the development of top-performing games. Furthermore, Light & Wonder's social casino platform, SciPlay (NASDAQ:SCPL), is outpacing the social casino segment with higher monetisation rates and modest user growth.
The iGaming sector, despite being relatively small for Light & Wonder at present, is identified as a significant growth opportunity. The company's established reputation in land-based gaming is anticipated to be a key advantage in this rapidly expanding market, with a projected compound annual growth rate of 14%.
Lastly, Goldman Sachs anticipates continued improvement in Light & Wonder's free cash flow conversion, expecting it to reach 47% by fiscal year 2026. This improvement is seen as a justification for the company's valuation increase and provides potential for future capital management initiatives.
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