Shares in gaming company Light & Wonder Inc (ASX: LNW) have been out of favour recently, but with little in the way of news flow to explain why.
The company is set to report its first-half results tomorrow, but RBC Capital Markets has got in ahead of the results to publish a bullish report on the stock, which they think is looking cheap at the moment.
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Shares on the slide
Firstly, let's look at how the shares have been travelling recently.
The shares had a huge day in mid-January, when Light & Wonder settled a major lawsuit with fellow gaming company Aristocrat Leisure Ltd (ASX: ALL).
Light & Wonder shares jumped about 25% to $193 on the day before settling back a bit as the day went on.
Investors were clearly glad that a lawsuit brought by Aristocrat against Light & Wonder had been settled – for about $190 million – and the company could then get on with business.
The lawsuit was effectively about whether Light & Wonder had used some of Aristocrat's intellectual property in developing its Dragon Train and Jewel of the Dragon games.
Light & Wonder agreed to stop selling the games and to destroy documents related to the intellectual property.
But while Light & Wonder shares did well on that day, they have crept steadily lower ever since, and are changing hands for just $135.13 now.
Looking like a solid buying opportunity
RBC has just initiated coverage of the stock, and its analysts say the shares are looking cheap.
As they said in a note to clients:
We initiate coverage on Light & Wonder with an outperform rating and a price target of $190 per share, which implies 41% upside from current levels. Having successfully settled the Dragon Train litigation and moved to a sole primary listing on the ASX, the company is well positioned to drive incremental share gains in the higher value segments of a resilient gaming market. Our Outperform rating is based on strong forecast EPS growth (3-year CAGR of 23%), resilient global gaming markets, increasing cashflow generation and improving return on capital. Global gaming markets remain resilient as evidenced by recent gaming machine expenditure data, notwithstanding some concerns about the softness in destination markets. US casino revenue was up 1% in the month of December and it was up 2% in 2025.
RBC also said the company's acquisition of Grover Gaming in the charitable gaming sector was a strategic move for the company, giving it an entry point into a new sector.
Light & Wonder was valued at $10.85 billion at the close of trade on Monday.
