Light & Wonder on Pace to Top 2025 EBITDA Forecast

Helped by new slot machines and strength in the land-based casino industry, Light &Wonder (NASDAQ: LNW) is on pace to beat a previously disclosed 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA) estimate.

That’s the take of JPMorgan, which sees the gaming device manufacturer beating the $1.4 billion 2025 EBITDA outlook the company revealed two years ago. The bank added its outlook includes potential upside of 2% to 5% to consensus forecasts on Light & Wonder’s 2023 through 2025 EBITDA outlook. New slot titles, including those featured in Australia, are helping Light & Wonder’s cause.

Early performance from the new Dragon Train family of games in Australia demonstrates good early execution,” noted JPMorgan.

Light & Wonder rolled out the Dragon series of gaming machines last August to gain more share in Australia.

Australia Marquee Market

Last May, Light & Wonder commenced a secondary listing on the Australian Securities Exchange (ASX), affirming its commitment to Australia. At the consumer level, the Dragon family of games extends that commitment.

“This family of games has lifted Light & Wonder’s average turnover ratio from 0.55 to 0.76 in New South Wales and 0.82 to 1.00 in Queensland,” added JPMorgan.

Regarding Light & Wonder’s finances, the company is increasingly a free cash flow story. Accompanied by rapidly declining leverage, the firm’s free cash flow margins exceed those of comparably valued industry peers.

In 2021, Light & Wonder sold its lottery and sports betting units, generating $7 billion in cash prudently used to slash debt and fund share repurchases. Due to that influx of cash, JPMorgan sees the gaming company continuing to drive leverage lower, potentially signaling that an inflection point for free cash flow generation is nearing.

“Third-quarter 2023 was the first quarter Light & Wonder hit its FCF/EBITDA conversion target. We expect further improvement from here,” according to the bank.

Light & Wonder Catalysts

Light & Wonder delivers fourth-quarter results on February 27, and that could be a catalyst because the company beat earnings per share (EPS) estimates in the prior two quarters, and it’s on a six-quarter streak of topping Wall Street revenue forecasts.

Another potential spark for Light & Wonder shares is the possibility that analysts will raise price targets on the name as it trades higher. Currently, the consensus price outlook on the stock is $93.75, which implies upside of 13.70.

Of the 12 sell-side analysts that cover the gaming device maker, eight rate it “strong buy,” while one calls it a “buy,” and three rating the stock “hold.”