Aristocrat Leisure Limited (ASX: ALL) shares demonstrated significant strength after the company announced its full year results on Wednesday this week. The Aristocrat share price slumped 6% on open before making a sharp recovery to close 4% higher. From trough to peak, this represents a 10% move in share price in just one day.
At face value, the company’s results appeared to be weak given the slump in earnings. However, big brokers reacted positively to the results, especially with the growth in Aristocrat’s digital business. All things considered, could the Aristocrat share price be a leading ASX 200 growth share to buy?
Full year results recap
Aristocrat’s group revenue decreased 5.9% to $4.1 billion, reflecting a 32% decrease in its gaming (land-based) revenue as a result of customer venue closures and social distancing restrictions. This was largely offset by a 29% growth in its digital revenues.
Earnings before interest, tax, depreciation and amortisation (EBITDA) was 32% lower than the prior corresponding period at $1,089.4 million. Despite lower earnings, Aristocrat maintains a significant balance sheet with almost $2 billion of available liquidity at 30 September 2020.
Management appears to be confident with the company’s financial position and authorised a final fully franked dividend of 10 cents per share.
Brokers upgrade Aristocrat share price target
Despite a fall in earnings and the Aristocrat share price trading at a price-to-earnings (P/E) ratio of more than 70, big brokers are bullish on its outlook.
Citigroup Inc (NYSE: C) raised its Aristocrat share price target from $34.60 to $40.60 and retains a buy rating. This represents almost a 20% upside to Aristocrat’s current share price of $33.90 (at the time of writing). The broker believes Aristocrat’s FY20 results were conservative and leave the door open for positive surprises in the first half of FY21. Citi increased its expected earnings for Aristocrat for FY21 by 7% and for FY22 by 10%.
Similarly, UBS Group (NYSE: UBS) raised its Aristocrat share price target from $34.25 to $38.80 and retains a buy rating. The broker was impressed by the company’s ability to capitalise on digital business.
Credit Suisse Group (NYSE: CS) was more conservative in its share price upgrade from $30.00 to $37.60 with an outperform rating. It notes that Aristocrat’s United States gaming operations were a highlight, but that the Australian contraction reinforced ongoing risks.
Macquarie Group Ltd (ASX: MQG) largely maintained its Aristocrat share price target from $31.50 to $32.00 with a neutral rating. While it cites better than expected FY20 results, the broker was disappointed by Aristocrat’s progress on controlling costs.