On Wednesday, UBS upgraded shares of Light & Wonder (NASDAQ: LNW) from Neutral to Buy. The firm recognized the company's progress in its transformation and its strengthening position in various gaming sectors including premium leased, outright sale, and iGaming content. UBS anticipates that Light & Wonder will achieve its fiscal year 2025 Adjusted EBITDA (AEBITDA) target and expects further growth driven by increased market share in North American slot revenue.
The firm noted the potential for a positive shift in investor sentiment if Light & Wonder sets a new financial target beyond fiscal year 2025. This could reinforce confidence in the company's ability to maintain its growth momentum. UBS has acknowledged past challenges Light & Wonder faced in surpassing high market growth expectations.
The upgrade comes after Light & Wonder's stock experienced an 18% decline following the injunction against its Dragon Train product. UBS believes that the current lower stock valuation presents an opportunity, suggesting that the potential for upside now outweighs the risks. The firm mentioned that the stock is trading at a roughly 20% discount compared to its peers' price-to-earnings (PE) ratios.
UBS's positive outlook for Light & Wonder is partly based on the expected continued growth in the company's share of the North American slot revenue. The firm's analysis indicates that the recent market reaction to the Dragon Train injunction has created a favorable entry point for investors, with the stock's valuation being more attractive than before.
In other recent news, Light & Wonder has experienced several significant developments. The company reported Q2 consolidated revenue of $818 million, a 12% increase, and operating income rose to $175 million.
Moreover, Light & Wonder initiated a $1 billion share repurchase program and set a target of $1.4 billion adjusted AEBITDA by 2025. However, a legal setback involving its Dragon Train franchise led to Stifel and Susquehanna revising their price targets for the company to $100 and $90, respectively.
The NV District Court granted a preliminary injunction to Aristocrat, limiting Light & Wonder's ability to continue sales or leasing of Dragon Train. Despite the legal issues, Maxim Group initiated coverage of Light & Wonder with a buy rating and a price target of $144, predicting sales growth of 11% in 2024 and 8% in 2025.
Light & Wonder also disclosed a regulatory update to the Australian Securities Exchange concerning its CHESS Depositary Interests, demonstrating its commitment to international regulatory compliance. These are recent developments, highlighting the company's financial health and market challenges.
InvestingPro Insights
As UBS upgrades Light & Wonder (NASDAQ: LNW) to Buy, real-time data from InvestingPro provides additional context for investors considering the stock. The company's market capitalization stands at a robust $8.03 billion, reflecting its significant presence in the gaming sector.
With a forward-looking P/E ratio of 18.95, Light & Wonder is positioned for potentially attractive earnings compared to its current valuation. Moreover, the company's gross profit margin impressively reaches 70.46%, indicating strong operational efficiency and the ability to maintain high profitability.
InvestingPro Tips further enrich the analysis with insights that the company's net income is expected to grow this year, and it boasts impressive gross profit margins. These factors, combined with the fact that Light & Wonder's stock price has recently taken a hit, suggest that the stock may indeed be in oversold territory, offering a potentially lucrative opportunity for investors.
For those looking for more comprehensive analysis, there are an additional 10 InvestingPro Tips available, which can be found at InvestingPro. With the next earnings date set for November 6, 2024, investors will be watching closely to see if the company can continue to meet its growth targets and justify the positive sentiment from analysts.
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