Why the Aristocrat Leisure (ASX:ALL) share price can go higher from here

Here's why the Aristocrat Leisure Limited (ASX:ALL) share price could be going higher from here over the next 12 months…

| More on:
Man sitting at poker machine celebrates a win by raising his arms straight up in the air.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Aristocrat Leisure Limited (ASX: ALL) share price could be going higher from here according to one leading broker.

In afternoon trade the gaming technology company's shares are down slightly to $34.51, but analysts at Goldman Sachs believe there's decent upside to come for its shares.

What has been happening?

On Wednesday Aristocrat released its full year results for FY 2020 and, as expected, revealed a sizeable drop in profits because of the COVID-19 pandemic.

In case you missed it, for the 12 months ended 30 September, Aristocrat reported a 5.9% decline in operating revenue to $4,139.1 million and a 31.8% reduction in earnings before interest, tax, depreciation and amortisation (EBITDA) to $1,089.4 million.

This was driven by a 32% decrease in Aristocrat Gaming (Land-based) revenue due to the impact of COVID-19 customer venue closures and social distancing restrictions. This revenue decline was almost offset by an impressive performance by Aristocrat Digital segment.

The latter segment delivered double-digit growth in bookings, revenue, and profit during FY 2020. Management noted that its RAID: Shadow Legends game continued its impressive growth trajectory, generating US$368 million in bookings.

Was this a good result?

According to a note out of Goldman Sachs, Aristocrat Leisure beat its forecasts for both revenue and earnings in FY 2020. It was also impressed with its cash conversion and notes that its net leverage remained steady.

In light of this, the broker has held firm with its buy rating and lifted its price target on the company's shares to $37.00.

This price target implies potential upside of approximately 8.5% over the next 12 months including dividends.

Goldman commented: "Despite the challenging backdrop, ALL delivered a high quality result in our view given i) demonstrated scalability of digital, with margin expansion, and significant ABPDAU growth despite lower DAU (focus on quality), ii) better-than-expected US land based performance, both in terms of outright sales and growing its install base while maintaining marketing leading avg fee per day, and iii) strong cashflow generation in the half while balance sheet strength clearly remains a highlight."

"Looking ahead, management remain focused on positioning ALL for further growth, targeting to maintain/enhance land based share, bookings growth across digital, and continued D&D investment (above historical levels) to drive sustained long term growth. Therefore we continue to view ALL as well-placed to leverage off its strong balance sheet and above peer D&D spend to capture further share gains or M&A opportunities," it concluded.

Motley Fool contributor James Mickleboro 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 Scott Phillips.

More on ⏸️ ASX Shares

a woman wearing a close-sitting hat featuring wires and thick computer screen glasses clutches her computer monitor and looks shocked and disturbed as she reads old-fashioned computer text from the screen.
Technology Shares

Here's why ASX 200 tech shares (ASX:XTX) outperformed today

ASX tech shares have taken a turn for the better today.

Read more »

Worker in hard hat looks puzzled with one hand on chin
Resources Shares

Why did the Rio Tinto share price (ASX:RIO) have such a lousy 2021?

We look at what happened to this ASX 200 mining giant's shares last year

Read more »

a miner wearing a hard hat smiles as he stands in front of heavy earth moving equipment on a barren mine site.
Share Gainers

Here's why the Rumble Resources (ASX:RTR) share price is climbing 5%

The mineral explorer's share price is on the rise amid promising drill results.

Read more »

share price high, all time record, record share price, highest, price rise, increase, up,
⏸️ ASX Shares

Here are the top 10 ASX 200 shares on Wednesday

Here are your top 10 biggest gainers in the ASX 200 on Wednesday.

Read more »

comical investor reading documents and surrounded by calculators
⏸️ ASX Shares

The ASX reporting wrap-up: WiseTech, Bravura, Seven Group

Just what the investor ordered. Here’s a recap of the companies that reported on Wednesday...

Read more »

Doctor performing an ultrasound on pregnant woman
⏸️ ASX Shares

The ASX reporting wrap-up: Ansell, Kogan, Nanosonics

Just what the investor ordered. Here’s a recap of the companies that reported on Tuesday...

Read more »

blue arrows representing a rising share price ASX 200
⏸️ ASX Shares

Here are the top 10 ASX 200 shares on Tuesday

Here are your top 10 biggest gainers in the ASX 200 on Tuesday.

Read more »

unhappy investor considering computer screen
Share Market News

The ASX reporting wrap-up: Charter Hall, Ampol, NIB Holdings

Just what the investor ordered. Here’s a recap of the companies that reported on Monday...

Read more »