Published on: September 25, 2024, 08:14h.
Last updated on: September 25, 2024, 08:14h.
The preliminary injunction requiring Light & Wonder (NASDAQ: LNW) to halt sales and leases of the “Dragon Train” series of slot machines could impact the company’s adjusted earnings before interest, taxes, depreciation, and amortization by around $70 million.
Macquarie analyst Chad Beynon mentioned this in a recent report to clients, aligning with the company’s own forecasts. Light & Wonder reiterated its 2025 EBITDA projection of $1.4 billion, stating that “Dragon Train” devices accounted for less than 5% of that total.
Yesterday, L&W shares fell after a US District Court injunction required them to pause sales of “Dragon Train” slots, primarily in Australia. Aristocrat Technologies, based in Australia, initiated the legal action, claiming similarities between the L&W game and their own “Dragon Link” machines.
Light & Wonder’s stocks rose a mere 1% today, with little recovery from the previous day’s decline. The company is seeking clarification on the injunction and exploring legal avenues for resolution.
Light & Wonder Faces Short-Term Challenges
Following Tuesday’s downturn, analysts suggested that Light & Wonder shares’ valuation had been reset due to the stock’s previous gains, making it less favorable. This could hinder a quick rebound.
Despite minor earnings adjustments, LNW’s decline reflects uncertainties from litigation outcomes, management credibility, and potential impacts on volumes,” noted Beynon.
He reiterated an “outperform” rating on the stock but signaled a lack of immediate catalysts. His price target for L&W is $117, implying a 27.7% upside from the current close. However, ongoing litigation issues could impede a swift recovery.
“In addition to the Aristocrat lawsuit, LNW is also facing legal challenges from Evolution related to alleged copying of math files and payout structures for table games,” added Beynon.
‘Dragon Train’ Reflects Challenges for Light & Wonder
The “Dragon Train” slots are popular in Australia, with the series seen as a potential growth driver for L&W in the country. However, the legal actions from Aristocrat could change that outlook for L&W.
L&W has a diverse product portfolio, lessening its reliance on “Dragon Train,” which is beneficial considering potential legal actions from Aristocrat.
“’Dragon Train’ is a successful game franchise but has been the subject of legal disputes with Aristocrat since March 2024. We estimate approximately 2,000 gaming ops installs, generating over $30 million AEBITDA, and direct sales resulting in around $40 million EBITDA. If successful in court, Aristocrat may push for the removal of ‘Dragon Train’ rather than seeking royalties,” Beynon concluded.