Light & Wonder Stock Hindered by Legal Woes, Says Analyst

• Stock is reeling amid specter of more legal issues
• Aristocrat Dragon Train litigation could be expanded to include another game

Shares of Light & Wonder (NASDAQ: LNW) slid nearly 11% last Friday, a slump that extended into Monday’s trading session, as investors ponder the possibility that Aristocrat Leisure’s litigation against the company could be expanded to include another slot game.

In a Friday report that followed conversations with Light & Wonder management, Macquarie analyst Chad Beynon noted there’s “additional legal communication” regarding the company’s “Jewel of the Dragon” slot series, which could become part of the litigation filed last year against the manufacturer by rival Aristocrat.

This raises the question of why Aristocrat might be pursuing further legal action towards ‘Jewel of the Dragon’ when signs point to any potential impact to LNW’s business as de minimis,” observes Beynon. “We are not going to speculate here, but we think the main takeaway is that LNW’s exposure with ‘Jewel of the Dragon’ should be significantly lower than with ‘Dragon Train.’”

Last September, Aristocrat Technologies won a preliminary injunction that bars Light & Wonder from further leases and sales of “Dragon Train” slots. Judge Gloria Navarro of the US District Court for the District of Nevada ruled Aristocrat is highly likely to prove its competitor “misappropriated Aristocrat’s trade secrets” from its “Dragon Link” games in developing “Dragon Train.” When the suit was originally filed in June 2024, it was “Jewel of the Dragon” was mentioned, indicating it’s not surprising that Aristocrat could move to include it in the broader litigation.

Light & Wonder Has Taken Steps to Remedy Situation

Previously, L&W’s Dragon family of games found success with bettors in Australia, and some analysts said the new series could be a catalyst for upside to earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates. Aristocrat is pursuing litigation against L&W in that country and earlier this year, a federal court there granted it pre-suit discovery against L&W.

“Aristocrat highlights similarities between the Red Phoenix version of the Jewel of the Dragon game and its own Autumn Moon game, including similarities between the Hold and Spin features, the jackpot displays, and the logos,” adds Beynon.

The original suit prompted Light & Wonder to pull “Dragon Train” slots in Australia and North America, but those devices were replaced by other titles from the manufacturer’s portfolio and “Dragon Train,” though popular, wasn’t a major driver of the producer’s earnings.

Unlikely to Hurt L&W EBITDA Goals

Light & Wonder has a long-standing 2025 consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) forecast of $1.4 billion and the good news is that even if Aristocrat expands the aforementioned suit to include “Jewel of the Dragon,” that earnings objective is still within reach.

“As it stands, our view is that this development does not derail LNW’s path to reaching its $1.4 billion 2025 EBITDA target,” concludes Beynon.

He rates the stock “outperform” with a 12-month price target of $125.