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Stifel maintained a Hold rating on Light & Wonder (NASDAQ:LNW) but reduced the price target to $100 from $108. The adjustment follows a recent legal development, where the NV District Court granted a preliminary injunction to Aristocrat, limiting Light & Wonder's ability to continue sales or leasing of its popular Dragon Train franchise until a final ruling is made.
The injunction comes as a surprise to some, as the consensus before the court's decision seemed to favor Light & Wonder. However, court findings have slightly tilted the scales towards Aristocrat. Light & Wonder has revealed that the Dragon Train's contribution to its expected $1.4 billion AEBITDA target for 2025 is less than 5%, which translates to approximately a $6-8 impact per share on equity value before any mitigation efforts.
Despite the market's negative reaction to the news, with Light & Wonder's stock falling by 19.50% today, Stifel suggests that the actual financial impact might not be as severe as the sell-off indicates.
Investors are likely considering the potential costs of legal fees, damages, and associated risks. Stifel notes that while the uncertainty surrounding the legal dispute could overshadow the stock, there is a chance for a rebound, especially with Light & Wonder expected to showcase new products at the upcoming G2E event.
The firm has not altered its earnings estimates for Light & Wonder, but the lowered price target reflects the current situation and the potential risks related to the ongoing legal proceedings.
In other recent news, Light & Wonder reported a 12% increase in consolidated revenue to $818 million in Q2, with operating income rising to $175 million. The company also initiated a $1 billion share repurchase program and set a target of $1.4 billion adjusted AEBITDA by 2025. However, Light & Wonder faces challenges due to a U.S. District Court's decision against them in an intellectual property lawsuit, leading Susquehanna to adjust their stock price target for the company to $90, maintaining a neutral stance.
Maxim Group, on the other hand, initiated coverage of Light & Wonder with a buy rating and a price target of $144, predicting sales growth of 11% in 2024 and 8% in 2025. Other recent developments include Light & Wonder's regulatory update to the Australian Securities Exchange regarding its CHESS Depositary Interests, demonstrating the company's commitment to international regulatory compliance.
InvestingPro Insights
As Light & Wonder navigates through its recent legal challenges, real-time data and insights from InvestingPro can provide investors with a deeper understanding of the company's financial health and stock performance. Despite the recent court injunction, Light & Wonder's net income is expected to grow this year, an InvestingPro Tip that suggests the company's underlying business remains robust. Additionally, the company boasts impressive gross profit margins, currently at 70.46%, according to the latest metrics. This indicates strong operational efficiency, which could help the company weather the current legal storm.
InvestingPro Data also shows that Light & Wonder's market capitalization stands at $8.03 billion, with a forward-looking P/E ratio as of Q2 2024 at 18.95. The stock's price movements have been quite volatile lately, which is reflected in the one-week price total return of -19.5%. However, the long-term view remains positive, with a 1-year price total return of 27.21%. This data may provide some reassurance to investors considering the company's potential for recovery post-legal resolution.
While the immediate future holds uncertainty, Light & Wonder's financial strength, indicated by a high gross profit margin and anticipated profitability, could offer a silver lining for investors. For those seeking additional insights, InvestingPro offers a total of 13 InvestingPro Tips for Light & Wonder, available at https://www.investing.com/pro/LNW, which delve into various aspects of the company's performance and stock valuation.
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