On Thursday, Jefferies analyst Simon Thackray upgraded Aristocrat Leisure (ALL:AU) (OTC: ARLUF) stock from 'Hold' to 'Buy', setting a new price target of AUD68.00, a significant increase from the previous AUD41.15. Thackray highlights a favorable competitive and industry environment that is expected to support substantial growth for the company in the fiscal years 2025 and 2026.
Aristocrat Leisure's position in the U.S. land-based gaming market is seen as a key advantage, with the company expected to gain market share. The analyst pointed to "particular short-term opportunities" resulting from the impact of DT and the rollout of a new gaming product, Phoenix Link.
The company's iGaming sector is also projected to become a substantial contributor to its earnings before interest, taxes, and amortization (EBITA), with expectations that it could reach up to $500 million in the medium term. Thackray's analysis suggests that Aristocrat Leisure's strategic review of its Pixel United (PxU) division is likely to further enhance the company's EBITA growth.
The upgrade by Jefferies reflects a positive outlook for Aristocrat Leisure's future performance, particularly in the U.S. market. The new price target implies a vote of confidence in the company's growth strategy and its potential to capitalize on emerging opportunities in the gaming industry.
InvestingPro Insights
Jefferies' optimistic outlook on Aristocrat Leisure is further supported by recent data from InvestingPro. The company's market capitalization stands at an impressive $24.07 billion USD, reflecting its significant presence in the gaming industry. Aristocrat's strong financial performance is evident in its revenue of $4.23 billion USD for the last twelve months as of Q2 2024, with a notable revenue growth of 9.75% over the same period.
The company's profitability is also noteworthy, with an operating income margin of 27.9% and a gross profit margin of 57.95% for the last twelve months. These figures align with Jefferies' positive view on Aristocrat's competitive position and growth potential.
InvestingPro Tips highlight additional strengths that support the analyst's upgrade. For instance, Aristocrat Leisure "has raised its dividend for 3 consecutive years" and "has maintained dividend payments for 29 consecutive years," indicating a strong and consistent return to shareholders. Moreover, the company is "trading at a low P/E ratio relative to near-term earnings growth," which could suggest potential upside in line with Jefferies' increased price target.
It's worth noting that InvestingPro offers 13 additional tips for Aristocrat Leisure, providing investors with a more comprehensive analysis of the company's financial health and market position.
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