Published on: October 8, 2024, 04:04h.
Last updated on: October 8, 2024, 04:04h.
Shares of Light & Wonder (NASDAQ: LNW) took a hit last week due to a legal ruling about its “Dragon Train” series of slot machines, but an analyst believes the stock is undervalued and the decline was unwarranted.
In a recent report, B. Riley analyst David Bain started covering the gaming device maker with a “buy” rating and a $120 price target, indicating a potential 25% upside from current levels. Bain believes the stock is undervalued compared to its peers and historical norms.
LNW’s enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) valuation is considerably lower than its peers, according to Bain.
The stock dropped after Aristocrat Gaming won a preliminary injunction against Light & Wonder regarding the similarity of the “Dragon Train” slots to the company’s own “Dragon Link” games.
Stock Impact of ‘Dragon Train’ Issue
Despite the popularity of “Dragon Train” machines, they were projected to contribute less than 5% of Light & Wonder’s anticipated 2025 EBITA of $1.4 billion. The company reaffirmed its 2025 forecasts even after the court ruling.
Analyst Bain believes the market reaction was exaggerated, noting that the company stands by its forecasts and capital return plans.
CEO Matt Wilson announced plans to replace “Dragon Train” slots with other popular titles in North America to mitigate the disruption caused by the legal issue.
SciPlay and Light & Wonder
SciPlay, a social casino developer under Light & Wonder, could be a key driver for the parent company’s stock in the long run, according to Bain. With SciPlay’s growth outpacing the industry, the unit is well-positioned compared to competitors.
Bain highlighted SciPlay’s revenue growth and market entry strategies as reasons for optimism about the stock’s future performance.