Aristocrat Leisure Ltd (ASX: ALL) shares were hammered in Wednesday's trade, sliding 13% to finish the session at $59.07 apiece.
The catalyst? The gaming giant's half-year results, also posted yesterday, which came in well behind consensus expectations.
This brings losses for the year to 8% at the time of writing, with shares currently swapping hands at $63.05 – a far cry from its six-month highs of $78.51 in mid-February.
But despite the sell-off, analysts at Macquarie have maintained the bank's buy rating on Aristocrat shares.
So, how should investors approach the stock? Let's dive in and see.
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Aristocrat shares dive on H1 earnings
In its 1h25 results, Aristocrat reported a 6% year-on-year increase in net profit to $733 million from revenues of $3 billion, up 9%.
This was below expectations, despite Aristocrat reporting an 18% increase in operating cash flow to nearly $775 million.
The company also confirmed it authorised a new $750 million share buyback program. This, having just completed a $1.85 billion repurchase of its own stock in the last period.
Despite the minor setback in earnings, one takeout was its gaming operations in North America. The region remains a key driver of growth for the company.
It booked an increase of 4,800 gaming machines to its installed base, which management expects to push an "acceleration in operating momentum" in H2, as it embarks on "product rollout and technology initiatives" in its portfolio.
Growth outlook tempered
After Aristocrat shares fell sharply, brokers at Macquarie were quick to update their forecasts on the gaming company. They lowered the firm's growth outlook for revenue and net profit.
We now forecast A$1,533m FY25 continuing ops NPATA, implying +7% yoy growth (+4% constant-FX), but is A$129m / 8% below our prior forecast…
…We see Aristocrat returning to net-cash in FY26 (currently A$425m net debt), supported by cash-generation, whilst undertaking annual share buy-backs of around A$750m. M&A remains a key talking point, with any acquisition to be within the current verticals, and to accelerate growth.
Macquarie's revised forecast now projects a price target of $70 per share. This reflects "a 13% premium vs ASX 300 Industrials", but it is down from a previous $75 valuation.
Concerns around potential slowdowns in US casino revenues due to pressure on consumer spending also fed into the more cautious outlook on Aristocrat shares.
Fellow broker Goldman Sachs also weighed in yesterday, reiterating its buy rating with a $74 per share target on the stock, also lower from a previous $76.80.
It says Aristocrat shares are well positioned thanks to the company's growth initiatives, where it expects "a strong 2H25 recovery with NSW/QLD launches in Apr/May driving close to 50% ship share."
Foolish Takeaway
Aristocrat shares have been heavily sold this week after the company posted its H1 FY25 earnings, which missed expectations.
Despite this, brokers Macquarie and Goldman Sachs still tip the stock as a buy, valuing it at $70 and $74, respectively.
Only time will tell what happens from here. But Aristocrat shares are also currently trading at nearly 33 times earnings, meaning investors pay $33 for every $1 of the company's profits, up from a multiple of 19x and 20x in 2023 and 2024, respectively. I'd urge investors to keep this in mind.
