J.P. Morgan is expecting Light & Wonder’s stock to appreciate in 2025.
A note from analyst Don Carducci places a price target for the global gaming company of $103 by the end of the year, rebounding from its 52-week high on September 19 of $115. The stock is trading in the upper $80s this week.
The company has dealt with an adverse litigation judgment in the U.S. that resulted in the ban of Light & Wonder’s Dragon Train.
Other analysts have echoed Morgan’s sentiments. David Katz with Jefferies Equities Research said the company is unfairly undervalued and put a $121 price target on the stock.
Excluding slot-route operations, Light & Wonder gained market share following the Dragon Train ban, representing 26 percent of overall sales and units shipped. Aristocrat and IGT each had 20 percent market shares.
Carducci said upside risks include continued strong performance by key land-based titles, particularly if replicated in the North American market; successful expansion into social gaming adjacencies; and faster-than-expected igaming legalization in the U.S.
Key downside risks include a stagnation in land-based title-turnover ratios leading to a slowing in sales volumes and installs; increases in social-casino/social-casual customer-acquisition costs impacting margins; and slower-than-expected igaming legalization.
“It appears that the market is expecting some disruption to the (Australia and New Zealand) Dragon Train installed base,” Carducci said. “If some or all Dragon Train machines need to be converted to other titles due to a court order (the same as in the U.S.), we think it is instructive to look at game performance for LNW outside of Dragon Train being much closer to market average.”
In terms of turnover ratios, Light & Wonder’s leading games outside of Dragon Train are Jewel of the Dragon, Huff N’ More Puff, and Shanlong, all roughly one times floor average.
Dragon Train had been the driver of incremental growth in installed machines since its launch in mid-2023, Carducci said. Following a strong net increase in Light & Wonder machines through October and November, December and January have been “broadly flat. More specifically, Shenlong has seen growth in net installs across each of the three months since launch.”
As of the end of January, Light & Wonder had installed about 4,700 Dragon Train games in Queensland and New South Wales.
“Following the Dragon Train injunction and subsequent uncertainty, net installs had sensibly gone slightly backwards in October and were flat from November,” Carducci said. “The historical monthly run-rate had been about 350; however, we have seen some potentially noisy data indicating conversions across a small percentage of the portfolio. Those conversions have shown early promise, but we expect the overall installed base to remain stable.”
For further context, the 4,700 Dragon Train installs compare to 15,000 Dragon Link games, 5,300 Dragon Cash games, and 4,700 Lightning Link games installed, Carducci said.
Given the Dragon Train roll-out pause, Light & Wonder’s turnover ratio has been flat since October. “Unsurprisingly Dragon Train has been the key driver of the climbing turnover ratio to date. Hence, the pause in installs means no mix benefit/effect on LNW,” according to Carducci.
Light & Wonder will report fourth-quarter earnings on Feb. 25.
