Dismissing trade-war fears as “overdone,” one stock analyst opined that Aristocrat Leisure is protected from tariffs should they happen. Jefferies Equity Research analyst Kai Erman shared these views in a March 31 investor note.
Aristocrat’s edge, according to Erman, lies in its diversified supply-chain model. He also noted that the company’s exposure to the Canadian market is minimal.
Following the pandemic, Erman related, Aristocrat moved to a more diversified approach, lowering its vulnerability to events in China. Now, much of its supply chain emanates from South Korea (29 percent), along with the United States (18 percent), China (14 percent), and Mexico (13 percent).
Also, Aristocrat has four assembly centers, geographically distinct. Machines are assembled in Las Vegas and Tulsa, Oklahoma, as well as in unspecified Canadian and Chinese provinces. This represents 27 percent of Aristocrat’s hardware cost, according to Erman.
The analyst did concede that Aristocrat would feel some Canadian impact, reflecting the importation of slot machines from the United States. Erman argued, however, that the effect would be minimal, even with reciprocal tariffs. He added that importation of machine parts from Australia, New Zealand, and Asia or Mexico would minimize the possible fallout from tariffs.
Any pain would be felt by end users. Or, as Erman wrote, “On a relative basis, [Aristocrat] should not be more disadvantaged than competitors, which typically assemble outside of the U.S. (Mexico in particular), and therefore should be able to pass on price better than competitors, which have stronger headwinds from tariffs.”
His monitoring of the industry, Erman explained, showed that Aristocrat is in a unique status — as is Light & Wonder — “to continue to drive market share in the absence of at-scale competition for the next 12-18 months.”
The Jefferies analyst pointed to CUSMA/USMCA Article 19.3 to reassure investors that Aristocrat’s digital products would be unimpacted by tariffs. Aristocrat, he added, has 10 percent digital exposure to Canada and 19 percent to the U.S.
