Broker tips Aristocrat Leisure Limited shares to outperform

The Santa Rally has kicked off with shares expected to be well supported right through to January if history is any guide.

But some stocks are better placed than others to make the jump and Morgans believes gaming machine maker Aristocrat Leisure Limited (ASX: ALL) is one worth betting on in the short-term.

The broker thinks the big US tax cut will be a catalyst for the share price run, which may have already started with the stock climbing 0.7% this morning to $23.91 when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) has dipped 0.3% into the red.

The US is slashing its federal corporate tax rate from 35% to 21% and that will give Aristocrat a nice circa 9% boost to its earnings per share (EPS) in FY19-20 under the overhaul, according to Morgans.

“We estimate that Aristocrat pays US tax on 36% of earnings and the group’s blended tax rate would reduce from 32% to 26%,” said the broker.

The reduction in its US tax bill will also allow Aristocrat to pay down debt more quickly and may even prompt the company to bring forward plans to make additional acquisitions.

Interestingly, while Morgans thinks there is a 60% to 70% chance of the stock outperforming the broader market over the next 60 days, it has an “equal weight” recommendation on the stock following its 21% gain this calendar year.

The broker has a price target of $25 a share on Aristocrat.

But Aristocrat isn’t the only ASX-listed stock to benefit from Trump’s tax shake-up, which is said to be the biggest in 30 years. I have written about the companies that will benefit from the tax cut at the start of the week and Credit Suisse is estimating that Trump has given ASX-listed companies a $620 million Christmas cash present.

Steel maker Bluescope Steel Limited (ASX: BSL) has just issued a profit upgrade today on the back of the US tax cut being passed by Congress, while others such as logistics group Brambles Limited (ASX: BXB), glove maker Ansell Limited (ASX: ANN), building materials supplier James Hardie Industries plc (ASX: JHX) and leisure facilities operator Ardent Leisure Group (ASX: AAD) also have significant exposure to the US market.

There is another group of stocks that have a bright earnings growth profile that are worth looking at. Click on the free link below to get your report from the experts at the Motley Fool on one area you should be focusing on for the year ahead.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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