The Aristocrat Leisure Limited (ASX:ALL) share price hit a seven-month low as shareholders continue to abandon the stock following its disappointing profit result yesterday.
The Aristocrat share price tumbled 4.7% to $24.25 in after lunch trade – making it the fourth-worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index.
This is the second day of steep losses for the ALL share price as the gaming machine maker slumped nearly 3% yesterday when management posted a 34% increase in net profit excluding amortisation of acquired intangible assets of $729.6 million for FY18.
The result was around 4% below consensus forecast and the stock was punished for the transgression. There’s just no room for disappointments in this volatile market.
However, brokers are still overwhelmingly positive about the outlook for the stock with all the top brokers sticking to their recommendation on Aristocrat.
One broker that has reiterated its “outperform” call on the stock is Macquarie Group Ltd (ASX: MQG). The earnings miss was largely due to increased investment in design and development (D&D) but Aristocrat should see some tangible benefits from this investment in later years.
“Aristocrat has an attractive growth outlook despite near term operating leverage headwinds,” said Macquarie who has a $30 a share price target on the stock.
“As such, we consider FY19 costs more so strategic to position for future growth with increased revenue to beprominent in FY20+. Overall, while trading on 19x /17x FY19/20 P/E and a 15% two-year EPSA CAGR [compound annual growth rate], we continue to see Aristocrat as attractive.”
UBS is another that is taken with the stock as it reiterated its “buy” rating on Aristocrat even as it lowered its price target by $3 to $34 a share.
“The highlight of the result was a 7% increase in US participation installed base during the second half, the strongest addition in the company’s history,” said the broker.
“We note the P/E multiple has de-rated to a 20% premium to the ASX200; which has only been seen on 17 days in the past 5 years. In our view, the outlook for the company has not changed enough to justify this change in valuation.”
Meanwhile, Deutsche Bank has also stuck with its “buy” recommendation on Aristocrat even though the broker described the profit result as “mixed”.
“The outlook commentary is positive and the skew to the second half and $100m increase in Digital UA spend are in line with market expectations,” said Deutsche.
“We maintain our Buy rating with the stock trading at a 33% discount to our valuation of $37.85/share and at 17.8x FY19e earnings.”
Now all we need is for the market to share the positive sentiment.
Motley Fool contributor Brendon Lau owns shares of Aristocrat Leisure Ltd. and Macquarie Group Limited. The Motley Fool Australia has recommended Coca-Cola Amatil Limited and Elders Limited. 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 Scott Phillips.