If you have room in your investment portfolio for a new addition, then Goldman Sachs thinks the ASX 200 stock in this article could be one to consider.
The broker believes that a recent pullback has created a buying opportunity for investors and is tipping its shares to rise strongly from current levels.
Which ASX 200 stock?
The ASX 200 stock in question is Light & Wonder Inc (ASX: LNW). It is a leading cross-platform global games company with a focus on poker machines.
It was recently in the spotlight when rival Aristocrat Leisure Limited (ASX: ALL) had an injunction successfully placed on its Dragon Train games.
While this news was a big blow given the success of this game, Goldman Sachs isn't concerned and continues to believe that its strong growth will continue regardless of the injunction.
Commenting on the impact of the injunction on the ASX 200 stock, the broker said:
Provided legal proceedings remain isolated to Dragon Train (1.0), our fundamental positive view on LNW is unchanged noting: (1) LNW is converting 2.2k Dragon Train (1.0) units (i.e. 7% of its 33k NA installed base) to other games including Huff n More Puff, Invaders Attacks and Ultimate Fire Link – a relatively seamless process that takes around 30 minutes to swap with no churn to date; (2) Dragon Train (2.0) has been transferred to a new game studio and is expected to be rolled out over FY25, mitigating further impacts from this franchise.
And while it acknowledges that the injunction could weigh on sentiment in the near term, it believes the sell down of its shares has been an overreaction. The broker said:
We believe the injunction could weigh on LNW's share price in the near term; however, the -15% move post announcement appears to be pricing in a greater earnings impact (>US$150mn based on a 9x LT NTM EV/EBITDA multiple) relative to company guidance of c.US$70mn (i.e. less than 5% of US$1.4bn) in FY25.
Big return potential
According to the note, Goldman Sachs has retained its buy rating on the ASX 200 stock with a trimmed price target of $172.20.
Based on its current share price of $143.50, this implies potential upside of 20% for investors over the next 12 months. It adds:
We believe LNW remains well positioned to gain market share across premium leased, outright sale and digital (SciPlay & iGaming) content, with management reiterating its FY25 AEBITDA target of US$1.4bn (GSe US$1,394mn vs. Visible Alpha Consensus Data US$1,379mn) post a preliminary injunction relating to its Dragon Train (1.0) roll out.
