Broker says this sold-off ASX 200 tech stock is a buy

Bell Potter sees the selling as a buying opportunity. Here's what the broker is saying.

| More on:
An ASX 200 market analyst holds his hand to his chin and looks closely at his computer screens watching share price movements

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors sold off the Light & Wonder Inc. (ASX: LNW) share price on Tuesday, sending the ASX 200 tech stock more than 18% lower to end the day at $134.53.

What happened?

The catalyst for the selling was news that the game developer had been hit by legal action from rival Aristocrat Leisure Limited (ASX: ALL).

Aristocrat alleges that Light & Wonder's Dragon Train game infringes on the copyright and intellectual property of Dragon Link, one of its most popular games.

Unfortunately for the ASX 200 tech stock, Aristocrat successfully argued its case in front of judges. Light & Wonder advised:

Light & Wonder, Inc. today received an order from the US District Court for the District of Nevada granting Aristocrat a preliminary injunction relating to L&W's Dragon Train game.

We respectfully disagree with the judge's decision and will promptly file an appeal. We will continue to vigorously defend against Aristocrat's claims, including presenting our defenses to a jury at a trial.

And while management has reaffirmed its guidance for FY 2025, believing it can mitigate the immediate impact of the injunction, the market wasn't as positive and investors were quick to hit the sell button.

Time to buy this ASX 200 tech stock?

Bell Potter believes that the selling has created a buying opportunity for investors.

In response to the news, the broker has retained its buy rating with a reduced price target of $161.00 (from $186.00). Based on its current share price of $134.53, this implies a potential upside of almost 20% for investors over the next 12 months.

Commenting on the injunction, Bell Potter said:

LNW is moving forward on several key initiatives to mitigate the immediate impact and any continuing business disruption from the injunction.

Possible initiatives include: Development of altered DT game by different LNW studio and replacement of DT software with other games on existing Kascada cabinets. We downgrade EPS by -5%, -10% and -6% over CY24-26 reflecting lost earnings from the injunction.

Nevertheless, the broker remains positive on its outlook and sees value in its shares. It adds:

Whilst the loss of future Dragon Train revenues is disappointing, our Buy thesis remains predicated on LNW's cross-platform strategy and leading scale producing a portfolio of high-performing games in both land-based and digital markets.

As a result, we expect improvement in product quality to strengthen LNW's competitive advantage, supporting higher ROIC.

However, its analysts concede that "any damages paid by LNW present potential downside risk to our forecasts and may create an overhang on the stock in the near term."

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Light & Wonder. The Motley Fool Australia has recommended Light & Wonder. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

a man in a business suit stands on top of an office chair in a sea of murky water with shark fins circling.
Technology Shares

Is the greatest threat to Appen shares a 27-year-old AI billionaire?

Tech is a constantly evolving landscape.

Read more »

A man has computer-generated images rushing through his head indicating an AI (Artificial Intelligence) concept of a communication network.
Technology Shares

Up 46% in a year, why this ASX 200 tech stock could keep racing higher

The ASX 200 tech company is witnessing huge growth for its services.

Read more »

A man looking at his laptop and thinking.
Technology Shares

Guess which ASX 200 tech director just sold $85 million worth of company stock

This director is retiring and selling his shares on the way out.

Read more »

A woman presenting company news to investors looks back at the camera and smiles.
Technology Shares

Why this ASX 200 stock could be one of the best to buy in the Asia-Pacific

Goldman Sachs is one of the world's most highly respected investment banks. Its analysts scour the globe for investment opportunities…

Read more »

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX tech stock just rocketed 41% on a new government deal

Investors are sending the ASX tech stock soaring on the heels of a new government deal.

Read more »

Three analysts look at tech options on a wall screen
Technology Shares

Why did this ASX 200 tech share rise 29% in 30 days?

The ASX 200 tech sector had a great month in September.

Read more »

Happy woman holding white house model in hand and pointing to it with a pen.
Mergers & Acquisitions

REA share price charges higher on big Rightmove news

It wasn't fourth time lucky for the realestate.com.au operator.

Read more »

A young man punches the air in delight as he reacts to great news on his mobile phone.
Technology Shares

This ASX 200 tech share can 're-rate towards best in class tech peers'

This could be a tech stock to buy according to Goldman Sachs.

Read more »