Even as the market seems to be losing its puff, the Aristocrat Leisure Limited (ASX: ALL) share price could be poised to rally next week.
The S&P/ASX 200 Index (Index:^AXJO) gave up morning gains and slipped 0.2% during lunch time trade.
The benchmark is up by nearly 9% since the start of the month thanks to news of a potential COVID‐19 vaccine and a Joe Biden US presidency.
Is a market correction looming?
But some experts believe the bounce is an overreaction. The vaccine candidate from Pfizer, as promising as it is, still has some ways to go before it's available to the general public.
President-elect Biden is also going to face an uphill battle to control the pandemic and execute on his economic agenda.
While experts will continue to debate whether the golden run for COVID beneficiaries like the Afterpay Ltd (ASX: APT) share price and Domino's Pizza Enterprises Ltd. (ASX: DMP) share price is coming to an end, the stock investors should be watching is Aristocrat.
Why the Aristocrat share price can outperform
The gaming machine maker is set to report its full year results next Wednesday. And if brokers are right, the Aristocrat share price could be set to rally further.
Morgans believes the group's outlook will give investors something to celebrate over and it reiterated its "add" recommendation on Aristocrat.
"The company's 2H20 result will have been heavily impacted by COVID-19 but we expect ALL to exit the current environment in a stronger position than competitors," said Morgans.
"And given an expected sharp deleveraging over the next few years, we see scope for further debt funded acquisitions."
Is Aristocrat's weakest business set to recover?
Social distancing and lockdowns to control the spread of COVID have impacted on casinos and gaming venues. These are customers of Aristocrat.
Even then, there are reasons to be optimistic. UBS noted that Aristocrat contributes 28% of net win for casino-owned games despite still having fewer machines than its rivals on the floor.
While that's encouraging news, make no mistake that Aristocrat's digital division is really the growth engine for the group.
Digital is the real driver for the ALL share price
"One key positive for the group to come out of COVID-19 has been the significant lift in demand for digital games," added the Morgans.
"We expect ALL's digital division to report ~24% (USD) revenue growth in FY20."
UBS is also optimistic about digital gaming. It estimated that the industry grew by over 30% in the past month.
Why the Aristocrat share price is a "buy"
"For Aristocrat specifically, the digital division appears to be broadly holding share and we feel confident around the 1H21 consensus forecast for +16% growth," said UBS.
"Looking at individual title performance, Evermerge is now Aristocrat's second largest social gaming title (behind RAID) and continues to ramp."
With digital powering ahead and land-based gaming turning the corner, now's the time to be buying the stock. UBS's rates the ALL share price as a "buy" with a price target of $34.25 a share.
Morgan's target on the Aristocrat share price is $36.78 a share.
