Goldman Sachs has been busy looking at the gaming and gambling industry.
This has led to the broker initiating coverage on three ASX 200 stocks today with one buy rating and two neutral ratings.
Let's take a look at what the broker is saying about these stocks:
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Aristocrat Leisure Limited (ASX: ALL)
According to the note, Goldman has initiated coverage on this gaming technology company's shares with a neutral rating and $55.30 price target. This implies potential upside of 7% for investors.
While Goldman is a fan of the ASX 200 stock, it doesn't believe the risk/reward is sufficient to start with a buy rating. It also feels that its growth rates could soon ease. It commented:
ALL's market leadership in land-based content and cabinets is undisputed, supported by its above industry D&D spend that includes sharing of success with game designers. We are positive on the name but are Neutral rated given: (1) ALL is positioned for strong growth in FY24 driven by outperformance in North American gaming operations. However, we expect growth rates to ease beyond that as ALL may be close to reaching a natural market share ceiling.
Lottery Corporation Ltd (ASX: TLC)
Another ASX 200 stock that has been rated as neutral by Goldman Sachs is lottery operator Lottery Corporation. It has a price target of $5.60 on its shares, which suggests that upside of 13% is possible for investors.
The broker expects a strong result this year but suspects that its growth could be challenged next year. It said:
Lotteries expenditure is known to be relatively defensive through the cycle, growing at +4% CAGR over a 25-year period (1998-2023), however can experience fluctuations on a YoY basis. We are Neutral rated on TLC given: (1) Accelerating revenue (GSe +12% revenue growth and +14% earnings growth) into FY24 resulting in a tough comp period for FY25 which should see a reversion to more normalised jackpot sequencing, absent any active prize management. We remain positive on the longer-term outlook with turnover growth to continue supported by population growth, game changes, and price changes.
Light & Wonder Inc. (ASX: LNW)
The ASX 200 stock that Goldman is tipping as a buy is Light & Wonder. It is a cross-platform global games company that provides gambling products and services.
Goldman has slapped a buy rating and $190.00 price target on its shares, which implies potential upside of 22% for investors over the next 12 months.
The broker believes that Light & Wonder can continue to win market share in Australia and North America and deliver strong profit growth. It said:
LNW is well-placed to continue winning market share in ANZ and North America gaming operations, driving earnings growth of +12% (2-year CAGR) to achieve its FY25 AEBITDA target of US$1.4bn, which we believe has not been factored into market expectations (GSe +3% above VA consensus). Additionally, we believe SciPlay is out indexing the social casino segment driven by higher monetisation rates and modest user growth, despite headwinds in the broader social gaming industry.
