Analysts say Light & Wonder shares have upside potential
Light & Wonder (NASDAQ: LNW ) stock could rise significantly on the back of a streamlined business model and a strong R&D budget.
That's the view of Morningstar analyst Angus Hewitt, who set an $87 price target on the stock in his latest coverage of the gaming gear maker. That represents a gain of nearly 21% from current levels, while the stock has fallen 7.33% over the past week. While Light & Wonder may not steal significant market share from rival Aristocrat Leisure, analysts note that the company should be able to defend its market share against smaller rivals.
"Light & Wonder has significantly simplified its business by divesting non-core lottery and sports betting assets," Hewitt wrote. “Light & Wonder is now a more focused company with broadly the same profile as main rival Aristocrat, operating in the social casino, iGaming and electronic gaming machine (EGM) sectors.”
In North America, Aristocrat, Light & Wonder and International Game Technology (NYSE: IGT ) together control about 80% of the land-based casino slot machine market.
Simplified Light and Miracles Thesis Can Help Stocks
In 2021, the company formerly known as Scientific Games raised about $7 billion in cash by selling off its lottery and sports betting units.
The deals dramatically reduced debt, won praise from Wall Street and simplified Light & Wonder's investment thesis. While this is happening, the company is able to direct some of its revenue into faster-growing segments, including iGaming. This capital inflow also supports increased research and development efforts.
“To maintain long-term share in the highly competitive EGM market, manufacturers must continually introduce new high-quality games that attract consumers and maximize venue revenue,” Hewitt added. "This requires continued R&D spending."
Light & Wonder spends less on R&D as a percentage of sales than Aristocrat, but more than IGT. Nonetheless, Light & Wonder is on the rise in the iGaming and social casino space. Last month, the company announced that it would acquire a 17% stake in the social casino developer that it did not already own. This clears the way for reintegration with the company that was spun off in 2019. The transaction is expected to close in the fourth quarter.
Why Light & Wonder R&D is Important
When evaluating the merits of Light & Wonder stock, the company's ability to succeed in research and development is critical. This is especially true as slot machine sales have stagnated compared to 2019 levels, but casino operators are looking for upgrades to provide room for growth.
Additionally, continued R&D efforts can offset some of the volatility that comes with manufacturers finding success with new games and struggling to gain traction with other games.
"Investment in R&D is critical to ensuring a healthy pipeline of new products, software developments and platform improvements, helping them drive demand and differentiate them from their competitors," Hewitt concluded. "While occasional successes can be accidental , but we expect that the continuity of development and delivery of popular games will be critical to the long-term success of any slot machine manufacturer."
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Source: www.casino.org
