Is Light & Wonder unfairly undervalued? Jefferies Equity Research analyst David Katz argued that such was the case in a January 15 investor note.
Katz put a Buy rating on the stock and raised his per-share price target from $120 to $121. Light & Wonder was trading for $85.14 a share at the time of his report.
The analyst commenced by observing that Light & Wonder had tumbled 26 percent from its September 19 peak of $115 per share. What happened? An adverse litigation judgment, which caused the banning of Light & Wonder’s Dragon Train game, has been blamed for the downfall.
Wrote Katz, “Our view is that the legal challenges with a competitor are unlikely to have a material financial impact, given the current competitive landscape heavily favors [Light & Wonder] and its largest competitors.” He predicted a share-price comeback, predicated on double-digit revenue growth and “meaningfully higher” cash flow in 2025 and 2026.
Katz said he had made very few alterations to his model for Light & Wonder’s current-year financial performance. “We believe expectations are well aligned for” the company to hit its $1.4 billion cash-flow target for this year.
“However, the path to this level has shifted since the guide was given in May 2022,” Katz cautioned. He pointed out that igaming was growing more slowly than predicted, outpaced by social-casino gains.
He also felt that the adverse impact of the Dragon Train ruling would be more than offset, not only by advances in social casinos, but by Light & Wonder’s slot-machine business. Katz added that conversion to free cash flow would easily hit his projected 36 percent win 2025 and improve still further next year.
Katz predicted 7.9 percent growth in Light & Wonder’s game sales, exceeded by a 10.1 percent climb in its operations department. Globally, he noted, slot sales had leapt 12 percent and Light & Wonder’s market share had swollen to 30 percent.
Light & Wonder’s interactive division continued to burgeon, Katz wrote, “driven by the integration of land-based titles and functionalities that generated growth that has outpaced the rest of the industry” in social gaming. He predicted continued momentum and 15 percent growth in igaming.
“The fundamental drivers of new game introductions, execution and share-taking remain as prior,” Katz concluded. He noted that Light & Wonder had substantial dry powder for share repurchases, given that it had $500 million cash on hand and 2.5 times cash flow in debt.