Light & Wonder (LNW) $140.65

LNW held an investor day on the 20^th May in New York, covering its multi-year growth strategy, including financial targets. There were some big numbers put forward, with the company targeting consolidated adjusted earnings (Ebitda) of $2 billion and doubling its 2024 adjusted Earnings Per Share (EPS) to over $US10 by 2028 ($US5.70 tipped for this year). These are big targets and there remains a level of scepticism in the market. As a refresher, LNW is a large gaming company based in Vegas, with its primary listing on the Nasdaq, with a secondary listing on the ASX. They make gaming machines (slots and electronic tables), Digital games for mobile and web platforms and iGaming, which is online gambling content.

LNW is a growth company, in a growth industry and they have been delivering. However, the concern in the market, which has been priced through the shares, is that growth in the future will be a lot harder to come by, and future growth will be at a lower clip than what has been produced in the past. That, along with a legal challenge from Aristocrat, has pushed it’s Est PE down to just 15.9x. On consensus numbers (not company targets) earnings are tipped to compound at a ~17% growth rate for the next 3-years, after getting over a flat spot in FY25, putting it on an attractive valuation for the potential growth.

Consensus is still also around 10% below company targets, which implies the market remains unsure. As UBS highlighted in a recent note, “on the one hand, we think the company deserves more recognition for the turnaround and growth achieved over the last 3 years, while on the other, the next 3 years may be more challenging to deliver (‘higher hanging fruit’), in particular around gaining that much market share.”

• Nevertheless, LNW trades at a material 40% PE discount to Aristocrat, and while ALL is more established and has lower risk across their business, we think the valuation discount and the targeted level of growth makes LNW an interesting proposition.