Light & Wonder Stock Has Big Upside Potential, Says Analyst

Posted on: August 22, 2023, 11:05h. 

Last updated on: August 22, 2023, 09:55h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Light & Wonder (NASDAQ: LNW) stock is on a torrid pace in 2023, posting a year-to-date gain of 29%. But at least one analyst sees the potential for much more upside.

In a note to clients on Tuesday, Redburn Atlantic analyst Andrew Tam initiated coverage of the gaming device manufacturer with a “buy” rating and $104 price target, implying upside of 40% from the August 21 close. In midday trading, shares of Light & Wonder are higher by 2.41% with the help of Tam’s report.

The gaming business remains highly profitable, and ongoing product improvements leave Light & Wonder well placed to retake share within gaming,” wrote Tam.

The Las Vegas-based company recently said it remains on pace to notch adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1.4 billion by 2025.

Light & Wonder Asset Sales Applauded by Tam

In 2021, the company formerly known as Scientific Games sold its lottery and sports betting units — transactions that raised about $7 billion in cash, driving leverage to 3.1x from 10.5x.

Wall Street has lauded that balance sheet repair. While lottery businesses are highly profitable, the new, leaner version of Light & Wonder has the resources to focus on higher growth segments. Those moves could pay off for long-term investors.

“The sale proceeds were used to pay down debt, repairing Light & Wonder’s balance sheet,” added Tam. “The divestments not only de-levered the business, but also repositioned Light & Wonder towards the faster growing digital segments of social gaming (SciPlay) and online RMG (iGaming).”

Speaking of SciPlay (NASDAQ: SCPL), Light & Wonder announced earlier this month that it’s acquiring the 17% of the social casino developer it doesn’t yet own. That paves the way for a reunion with the company it spun off in 2019. The deal is scheduled to close in the fourth quarter.

It could prove to be a smart move by Light & Wonder. SciPlay’s revenue jumped 18% in the June quarter, while net income increased 28% year-over-year. The gaming company’s cash-on-hand tally rose $64.8 million to $394.9 million.

Catalysts for Light & Wonder Stock

In addition to using some of the proceeds from the sales of its lottery and sports wagering units to fund digital businesses, Light & Wonder has been a steady buyer of its own shares, indicating that management sees value in the stock. That could be an avenue of support should the broader market turn south.

Wall Street is bullish on the name, with five of the nine analysts covering it rating the stock the equivalent of a “strong buy.”

Still, Tam’s $104 price target, the highest on the Street, stands out, as it is well in excess of the consensus Light & Wonder price forecast of $80.25.