Treasure Chest: Aristocrat Leisure

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This story features ARISTOCRAT LEISURE LIMITED, and other companies.
For more info SHARE ANALYSIS: ALL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today's idea is Aristocrat Leisure.

By Danielle Ecuyer

FNArena’s Treasure Chest reports on money making ideas from stockbrokers and other experts.

Whose Idea Is It?

RBC Capital

The subject:

Aristocrat Leisure ((ALL))

The pullback in the Aristocrat Leisure share price by over -30% on concerns over AI-disruption and macro headwind has served up an attractive entry point for investors, according to RBC Capital.

The gaming giant has scope to generate robust EPS growth in what is viewed as a “resilient” gaming market, with upside earnings potential.

A robust balance sheet, strong cash flow generation and market presence offers further appeal at the current (de-rated) valuation.

More info:

RBC Capital is the latest broker to wave the positive flag for Aristocrat Leisure in the run-up to the gaming giant’s first half earnings report on May 13.

The broker has initiated coverage of the stock with an Outperform rating and a target price of $58, placing it at the mid-end of broker target prices in the FNArena universe.

RBC views global gaming markets as resilient, noting the American Gaming Association’s Commercial Gaming Revenue Tracker evidenced 1Q26 US commercial gaming revenue was up 5% y/y, with land-based casino gross gaming revenue up 3% and iGaming gross revenue up 18%.

The analyst believes there is upside risk to current earnings forecasts if management can achieve its revenue target of US$1bn for Interactive by FY29.

The iGaming market is growing at 20%-plus, with Aristocrat at a 3.5% share of the iCasino market before the launch of Lightning Link. Further upside could emerge if greater focus is concentrated on the returns on its designer & development and user acquisition spend.

If historical performance is a guide, then RBC explains Aristocrat has scope for incremental market share growth, despite its current 43% share of the North American gaming ops market and a 31% share of the outright sales market.

The company’s overall game performance sits 26% above the industry average (1.26x versus index), with 18 of the top 25 premium lease games, 14 of the top 25 core titles and 10 of the top 25 WAP (progressive jackpot system) games, indicating outperformance in the premium leased games segment.

Interactive growth key as analysts back Aristocrat

UBS, in its earnings preview, highlights management talked down 2Q26 expectations at the February AGM, pointing to a second half earnings skew.

Key issues for the analyst include gaming ops net installs compared to guidance, which was set at 4k-5k; gaming ops fee per day versus guidance of “stable” on 2H25; cost growth in Product Madness (iGaming), as well as the exit from Big Fish in the portfolio.

[Note: gaming ops fee per day refers to the recurring daily yield per leased gaming machine in the field.]

Citi emphasises softer gross gaming revenue in the US in March, albeit this analyst attributes most of the softness to timing.

Citi also anticipates key focus on net adds, while acknowledging the skew to the second half, as well as fee per day, guided up year-on-year but flat in 2Q26.

Underperformance around Interactive (iGaming) will also be a point of interest, particularly in light of management’s aim to achieve US$1bn in revenues by FY29.

Morgans has adopted a more cautious view on Aristocrat’s Interactive division, while flagging a more “conservative” stance across the overall business ahead of the result.

Adjusting for the stronger Australian dollar versus the US dollar, as Aristocrat’s earnings are predominantly denominated in US dollars, EPS forecasts are tweaked lower by around -5% for FY26 and -6% for FY27.

Notwithstanding the slight downgrade, Morgans still anticipates net profit after tax can grow circa 10% in FY26 on a constant currency basis.

UBS forecasts US earnings (adj EBITDA) some 4% above consensus and net profit after tax of US$137m, 3% above consensus, which translates to constant currency growth of around 8% for the quarter.

Observing the integration of the second quarter into the expected interim result, UBS sits 0.4% above consensus for net profit after tax, or constant currency growth of around 15% y/y.

This broker accepts some month-to-month volatility in gaming. iGaming is viewed as a “strong” growth market, with Aristocrat positioned well for lottery contracts.

This online lottery business is growing quickly in states where it is legal and operates under a SaaS business model.

Balance sheet strength and cash flow offer options for investors

Future capital management was also flagged as a point of interest for UBS, with RBC emphasising the balance sheet is ungeared and free cash flow is forecast to reach above $1.7bn annually, offering considerable optionality around possible acquisitions, capital returns to shareholders, or via share buybacks.

A point that is also not lost on the Morgans analyst, who emphasises the “capital-light” business with robust cash conversion and around a 20% return on capital employed.

Citi remains Buy rated, with a target of $65, but points to possibly ongoing adverse sentiment around AI concerns and the Middle East war.

Morgans and UBS retain Buy ratings ahead of the result, with a $64 target (revised down from $73) and $68.90 target, respectively.

UBS is attracted to Aristocrat’s “lower risk” offering versus peer Light & Wonder ((LNW)) due to its revenue mix, content leadership and the strength of its balance sheet, offering some resilience were macro conditions to deteriorate.

FNArena’s daily monitored brokers (seven in total) have a consensus target of $64.957; all with Buy-equivalent ratings.

RBC Capital and Jarden are not part of the daily monitored group. RBC views the stock’s current valuation as attractive. Jarden rates the stock as Buy with a $68 target.

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