Top broker sees value in Aristocrat Leisure (ASX:ALL) share price

The Aristocrat Leisure Limited (ASX:ALL) share price could be good value according to one leading broker. Here’s what it is saying…

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

Since the start of the month, the gaming technology company’s shares have risen just under 11%.

This means the Aristocrat Leisure share price is now up an impressive 31% year to date.

Why is the Aristocrat Leisure share price on form?

Investors have been bidding the Aristocrat Leisure share price higher this month following the release of its first half update.

For the six months ended 31 March, the company reported a 1% decline in revenue to $2,229.7 million but an 18.4% increase in net profit to $362.2 million.

Management advised that the company’s growth continues to be underpinned by a sustained investment in game design, development and technology.

Aristocrat made a $242.7 million investment in Design & Development (D&D) in the period, representing 10.9% of group revenue. It notes that this is in line with its refreshed growth strategy and commitment to exceptional market-leading product portfolios, customer engagement, people, talent and culture.

Is it too late to invest?

One leading broker that still sees value in the Aristocrat Leisure share price is Citi.

According to a note this week, the broker has retained its buy rating and lifted its price target to $46.60.

Based on the current Aristocrat Leisure share price of $41.02, this implies potential upside of 13.5% over the next 12 months.

What did the broker say?

Citi was pleased with its performance during the first half and particularly its Digital margins.

It commented: “Aristocrat is gaining share and seeing improving rates of profitability in both the land-based and digital markets. Our earnings outlook is largely unchanged, with small downgrades to FY21e (-1.7%) and FY22e (-1.1%) on higher rates of reinvestment in D&D and UA but upgrade the longer-term outlook (FY23e +2.3%).”

“Digital margins are the key source of upside surprise vs. consensus in our view, given the monetisation of RAID and the shift to Plarium Play. Aristocrat’s balance sheet remains undervalued given the capacity it provides for acquisitions and reinvestment. We increase our target price to $46.60 given the improving outlook for Digital margins and the pace of the North American and ANZ land based recovery,” Citi concluded.

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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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