In a recent investor note, Jefferies Equity Research analyst Kai Erman expressed optimism about Aristocrat Leisure’s prospects, particularly with the launch of its new Phoenix Link game cabinet. This development comes at a time when the gaming industry is navigating a complex landscape, and Aristocrat appears well-positioned to capitalize on emerging opportunities.
Phoenix Link: A Game Changer for Aristocrat
Erman described the current climate for Aristocrat as “supportive,” projecting significant growth through 2026. He anticipates that the company could generate up to $500 million annually in cash flow from its iGaming segment.
- Key Highlights:
- Price Target Raised: Erman increased his rating to Buy, setting a price target of AUS$68 (approximately US$45) per share.
- Current Share Performance: Aristocrat’s shares closed at AUS$57.39 on the Australian Securities Exchange.
The unveiling of Phoenix Link at the Global Gaming Expo in Las Vegas is seen as a pivotal moment for the company. This launch is particularly timely, given the recent court-ordered removal of Light & Wonder’s Dragon Train game from casino floors, creating a gap in the market that Aristocrat aims to fill.
Competitive Landscape and Market Dynamics
While Erman does not expect Aristocrat to dramatically increase its market share, he believes the competitive environment will allow for incremental growth. He noted that operators are likely to avoid over-reliance on a single supplier, which could benefit both Aristocrat and its rival, Light & Wonder.
- Market Insights:
- Projected Shipments: Erman predicts Aristocrat will ship at least 2,800 units of Phoenix Link in North America next year.
- Dragon Train Void: The anticipated gap left by Dragon Train is estimated at around 2,200 machines.
Erman perceives a “moat” around major suppliers like Aristocrat and Light & Wonder, bolstered by ongoing mergers in the sector. He characterized the current demand for slot machines in the U.S. as “good, not great,” indicating a stable but cautious market.
iGaming and International Opportunities
Aristocrat’s online operations are also expected to benefit from the rising popularity of sweepstakes games, which may prompt more U.S. states to legalize iGaming. Erman believes this trend will significantly favor Aristocrat, as the company has adeptly leveraged its titles across various gaming modes.
- Market Expansion:
- Legalization Impact: The legalization of iGaming in states like Michigan, New Jersey, and Pennsylvania has not cannibalized brick-and-mortar revenue but has instead expanded the overall market.
- Latin America Focus: Erman sees potential in Latin and South America, particularly with Brazil’s anticipated regulation of iGaming in January, which represents a substantial market opportunity.
Aristocrat has already made strategic investments in Brazil-focused titles, positioning itself to capture market share in both land-based and digital gaming.
Financial Outlook and Debt Management
Despite the positive outlook, Erman does not foresee large share buybacks in the near future, as Aristocrat aims to reduce its leverage. He expects the company to retire $200 million of debt, which would lower interest costs by 25%.
This financial prudence, combined with the promising prospects of Phoenix Link and the expanding iGaming market, paints a hopeful picture for Aristocrat’s future in the gaming industry.
