The Aristocrat Leisure (ASX:ALL) share price is up 4% and could keep climbing

The Aristocrat Leisure Limited (ASX:ALL) share price is up 4% on Tuesday but has been tipped to keep on climbing higher. Here’s why…

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The Aristocrat Leisure Limited (ASX: ALL) share price has been a strong performer on Tuesday.

In late afternoon trade, the gaming technology company’s shares are up a further 4% to $40.47.

This means the Aristocrat Leisure share price is now up 29% since the start of the year.

Why is the Aristocrat Leisure share price charging higher today?

Investors have been buying the company’s shares this week following the release of a strong half year update on Monday.

That update reveals that the Aristocrat Gaming business has experienced exceptional product performance and customer engagement during the first half of FY 2021.

As a result of this and stronger than expected consumer sentiment and economic conditions in the United States and ANZ region, the segment’s profits have been growing quicker than forecast.

Another positive was that the Aristocrat Digital business is performing strongly as well. Management advised that it delivered above industry-average growth in bookings during the first half. This is translating into revenue and profit growth comparable to the prior corresponding period.

In light of this, for the six months ended 31 March, Aristocrat Leisure expects to report a normalised net profit after tax and before amortisation of acquired intangibles (NPATA) of $412 million. This will be a 12% increase on the prior corresponding period.

As you might have guessed from the Aristocrat Leisure share price reaction, this is far better than the market was expecting.

Positive broker response

Also giving the Aristocrat Leisure share price a boost has been the response to this update by brokers.

One of the most bullish brokers is Citi. This morning the broker retained its buy rating and lifted its price target to $44.50.

Based on the current Aristocrat Leisure share price, this implies potential upside of 10% over the next 12 months.

What did the broker say?

Citi notes that the company’s recovery is happening much quicker than anticipated.

It said: “Aristocrat is recovering much faster than market expectations, fuelled by a reopen and stimulated US economy. We pull forward the recovery, driving a 12% NPATA upgrade in FY21e (+21% in 1H21e and +5% in 2H21e) but only small revisions in FY22e (-1%) and FY23e (+1%). Note Citi FY22e and FY23e forecasts were ~6-7% above pre-trading update consensus levels. Little detail was provided at the trading update on the drivers of better-than-expected earnings, however we expect: 1) fee per day recovery in Gaming Ops; 2) Digital margin expansion; and 3) provision releases were the key elements of the better-than-expected 1H21e result. We maintain our Buy rating with a new $44.50 target price.”

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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. 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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