Growth investors on the lookout for big returns might want to consider Light & Wonder Inc. (ASX: LNW) shares.
That's the view of analysts at Goldman Sachs, which see potential for the ASX 200 tech stock to continue its rise.
What is the broker saying about this ASX 200 tech stock?
According to a note, the broker was pleased with the gaming developer's performance during the second quarter of FY 2024.
The highlight was its net installs in the North America (NA) market, which was underpinned by its Dragon Train game. It said:
Significant step up in NA net installs of +1,032 (GSe FY24 +2,316 vs. FY23 +590) with a clear acceleration in premium installs (50% of base, implying +830 net adds). Dragon Train continues to be a key contributor (rolled out in c.30 US states in 2Q) to gaming ops, and we expect the addition of Kelsy Foster (ex-IGT lead game designer for Mystery of the Lamp, Prosperity Link) in CY24 to support share momentum into the mid-term (GSe >20% from c.16% now).
Another positive was machine unit sales growth in NA, this was supported by a recovery in Asia, which may soon get a boost from new markets. It adds:
NA machine unit sales growth of +16% despite elevated 2Q23 levels (FY23 industry unit sales were at a 10-year high) driven by adjacencies such as Oregon Lottery and Georgia COAM, which comprised c.2,000 of the +5,809 gaming unit shipments. Asia unit sales (i.e. Macau, Singapore) continue to recover with LNW flagging UAE, Thailand and Japan as potential new markets.
And while Goldman acknowledges that "FCF conversion of 21% in 2Q was softer than expected", it believes that this "should normalise to 28%/39% in FY24E/FY25E, with continued FCF improvement remaining a key factor justifying LNW's valuation uplift."
Time to buy
In response to the quarterly update, the broker has reiterated its buy rating and $190.00 price target on the ASX 200 tech stock.
Based on its current share price of $155.00, this implies potential upside of almost 23% for investors over the next 12 months.
In respect to its buy rating, the broker justifies it for the following three reasons:
We expect LNW to achieve its FY25 AEBITDA target of US$1.4bn driven by: (1) share gains in North America gaming operations (GSe c.16% now to >20% over the mid-term). The success of recently launched games in ANZ gives us confidence the group can achieve similar growth in a much larger North American market, where there is significant scope for share consolidation (i.e. ALL currently at c.35%). Additionally, LNW is increasing their R&D spend (as a % of revenue) which will drive the development of top-performing games; (2) we believe SciPlay is out indexing the social casino segment driven by higher monetisation rates and modest user growth; and (3) while iGaming is relatively small now, LNW's pedigree in land-based should provide a key advantage in this large and growing market (GSe US$6bn, +14% CAGR). We see continued improvement in FCF conversion (GSe FY26E 47%) which is a key factor justifying the company's valuation uplift, and provides optionality for capital management initiatives.
