Investment Advisor Recommends Maintaining Current Position in Light & Wonder Shares
Light & Wonder, a leading gaming company, is gearing up for 2025 with a significant target in sight. Deutsche Bank has identified the year as crucial for the company's ambition to reach a $1.4 billion adjusted EBITDA, a goal that analyst Carlo Santarelli has outlined.
However, achieving this target will require Light & Wonder to accelerate its adjusted EBITDA to a range of 12% to 14% in 2025. This growth will be primarily driven by the company's gaming segment, with share gains and growth in adjacent markets playing a key role.
Santarelli, in his recent analysis, forecasted a $1.32 billion adjusted EBITDA for Light & Wonder in 2025. However, he has expressed doubts about the company's ability to meet the $1.4 billion target, deeming it unlikely.
The gaming segment, while promising, faces headwinds. Potential limits on operator spending budgets could pose a challenge. The loss of Golden Train, a key driver of yield expansion, is another potential issue. Santarelli does not expect Dragon Train 2.0 to serve as a like-for-like replacement for the lost revenue.
Despite these challenges, Light & Wonder's balance sheet and cash flow position remain strong. The company reported a slightly narrower $64 million profit for the third quarter of 2024, and its current free-cash-flow yield approximates 6%.
Santarelli also sees M&A opportunities playing a role in 2025. He did not name any specific companies as potential candidates, but he emphasised Light & Wonder's potential to continue returning capital to shareholders.
For the fourth quarter of 2024, Light & Wonder implied a year-over-year growth rate of adjusted EBITDA in the low- to mid-single-digit-range. Deutsche Bank has given Light & Wonder a Hold rating, and their price target for the company's stock is $78.
It's important to note that the current trading price of Light & Wonder stock is in the mid-$80s. Additionally, a case involving a former Light & Wonder employee claiming fraudulent reporting is currently with the Michigan Eastern District Court.
In conclusion, while Light & Wonder faces challenges in achieving its 2025 target, its strong financial position and potential M&A opportunities make it a company to watch in the coming year.
