Macquarie has an outperform rating on both Light & Wonder Inc. CDI (ASX: LNW) and Aristocrat Leisure Ltd (ASX: ALL) shares.
However, the metrics of one of these ASX gaming shares look far more appealing.
In a new note, Macquarie explains its view on Light & Wonder and Aristocrat shares.
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Should you buy Light & Wonder or Aristocrat shares?
Macquarie likes both of these operators, however, it points out that Light & Wonder is trading at lower multiples than Aristocrat shares.
For FY25, Macquarie says Light & Wonder shares are trading at 7.7x EV/EBITDA and a 13.6x price-to-earnings (P/E) ratio.
By contrast, Aristocrat shares are trading at 15.4x EV/EBITDA and 25x P/E.
So, Light & Wonder shares are seriously undervalued relative to Aristocrat shares, according to the broker.
Macquarie also thinks the Light & Wonder share price has comparatively more room to run.
The Light & Wonder share price closed at $134.17 on Thursday, up 1.3% for the day and down 3% over the past 12 months.
Macquarie has a 12-month price target of $198 on Light & Wonder shares. This implies a potential upside of almost 50%.
Aristocrat shares finished Thursday's session at $66.81, down 0.04% for the day and up 69% over the past year.
Macquarie has a price target of $75 on Aristocrat shares, implying a much smaller potential upside of 12% for new investors.
US casino trends
Macquarie analysed US gaming revenue based on data from 26 jurisdictions, incorporating the majority of US commercial casinos.
The broker found revenue in the year to 31 March was steady.
Revenue went up 1% across regional casinos, which represent 85% of total US gaming revenue, and fell 5% in Las Vegas.
The broker said regional gaming was continuing to benefit from new and expanded casinos in states like Illinois, Louisiana, and Virginia.
In terms of revenue by gaming products, revenue was 1% higher year over year for slot machines and 6% lower for gaming tables.
Total revenue for the month of March was US$4.6 billion, steady against March last year.
Macquarie says:
We are constructive on the resilience of US gaming revenues in a softening consumer environment based on long-run analysis.
Long term, we expect US land-based gaming revenues to be relatively insulated from any potential economic downturn given the historically low correlation to US GDP with slots more robust than tables.
In terms of market positioning, Macquarie says both Light & Wonder and Aristocrat are key players in the slot machine category.
In fact, the broker described them as "operating a duopoly within an oligopoly".
Here is a 12-month performance chart for Light & Wonder and Aristocrat shares.
