S&P/ASX 200 Index (ASX: XJO) stock Light & Wonder Inc (ASX: LNW) is in the green today, but shares remain down 15.1% since Monday.
In afternoon trade today, the Light & Wonder share price is up 4.0%, with shares trading for $139.99 apiece.
But, as you can see in the chart below, the stock has a ways to go before trading back at the $164.90 a share level where it closed on Monday.
Below, we'll look at why two leading brokers believe the ASX 200 stock will not only regain that level but could shoot far higher.
First, however…
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Why did the Light & Wonder share price crash this week?
The Light & Wonder share price closed down a precipitous 18.4% on Tuesday after the company updated the market on a United States lawsuit filed by rival ASX 200 gaming stock Aristocrat Leisure Limited (ASX: ALL).
Aristocrat alleges that Light and Wonder's Dragon Train game infringes on its copyright and intellectual property for its own highly popular Dragon Link game. The US court granted a preliminary injunction against L&W's game.
Light & Wonder said it intends to appeal the decision and present its defence to a jury, stating:
Light & Wonder, Inc. today received an order from the U.S. 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.
The ASX 200 stock reaffirmed its FY 2025 adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) guidance of US$1.4 billion.
Management noted that their pre-court ruling 2025 earnings estimate for Dragon Train was less than 5% of that $1.4 billion.
Which brings us to…
ASX 200 stock tipped to surge after 'overdone' sell off
Both Canaccord Genuity and Goldman Sachs believe investors overreacted in selling down the ASX 200 stock following the legal setback.
As The Australian reported, Canaccord Genuity analysts Allan Franklin and Andrew Tan said that "litigations and lawsuits are part and parcel of operating in the gaming industry".
They added that "sentiment has taken a hit with a share price reaction far beyond what we perceive to be the potential earnings implications".
According to Canaccord:
We impress upon the reader that the market is either assuming a much broader impact on near-term financials than the 5% reference from management, or broader contagion to other markets such as Australia is being assumed. We feel this is punitive given LNW's bench strength in the breadth of its game portfolio.
Canaccord Genuity has a $180 price target on the ASX 200 stock, representing a potential upside of 28.6% from current levels.
Goldman Sachs is also bullish on the outlook for Light & Wonder shares.
Goldman analyst Annabel Li expects the company's R&D spend will see it continue to develop top-performing games regardless of the outcome of this case.
According to Li (quoted by The Australian):
This update is disappointing for LNW, given the early successes of Dragon Train in Australia and the US. However, while we take no view on the outcome of litigation, we believe the LNW share price move… post announcement appears overdone.
Goldman Sachs has a buy rating on Light & Wonder with a $190 price target on the ASX 200 stock's shares.
That represents a potential upside of 35.7% from current prices.
