Mizuho Securities has adjusted its financial outlook on Light & Wonder (NASDAQ: LNW), reducing the price target to $76 from the previous $79, while maintaining an Underperform rating on the stock.
The adjustment, which came on Thursday, follows the company's latest earnings report, which revealed revenues of $818 million, surpassing both Mizuho's projection of $806 million and the consensus estimate of $803 million.
Similarly, the Adjusted EBITDA of $330 million exceeded expectations, with Mizuho's estimate at $316 million and the Street's at $312 million.
Despite Light & Wonder's solid quarterly performance that beat conservative analyst estimates, Mizuho expressed concerns about the company's free cash flow (FCF) conversion, which stood at 21%.
The firm noted that ongoing capital expenditure investments are likely to constrain FCF generation moving forward. This underperformance in FCF conversion is one of the reasons for the maintained Underperform rating.
The firm acknowledged the company's solid quarter but pointed out that the FCF results were not as strong as anticipated. According to Mizuho, there are more attractive investment options with better optionality within their coverage area. The firm's stance reflects a cautious view of Light & Wonder's financial health, particularly in terms of its ability to generate cash flow.
Meanwhile, Stifel maintained a Hold rating on Light & Wonder's stock, while raising the shares target to $106, based on the company's strengthened slot product forecasts and momentum in its SciPlay (NASDAQ:SCPL) division.
Similarly, Truist Securities increased the price target for Light & Wonder's shares to $120, maintaining a Buy rating, following a 13% year-over-year increase in the company's consolidated revenue to $756 million. Goldman Sachs (NYSE:GS) also initiated coverage on Light & Wonder with a Buy rating, forecasting growth driven by market share gains in North America and the success of recently launched games in Australia and New Zealand.
Light & Wonder has also introduced a new tranche of term loans amounting to $2.16 billion, a strategic move expected to lower interest expenses and extend debt maturity. The company has updated the Australian Securities Exchange regarding its holdings, reflecting its commitment to international market regulations and transparent communication.
InvestingPro Insights
In light of the recent financial outlook adjustment by Mizuho Securities for Light & Wonder, it's pertinent to consider additional financial metrics and InvestingPro Tips that can provide a broader perspective on the company's performance and potential. According to InvestingPro data, Light & Wonder boasts an impressive gross profit margin of 70.46% for the last twelve months as of Q2 2024, reflecting strong operational efficiency. Additionally, the company's revenue growth remains robust, with a 12.75% increase over the same period.
InvestingPro Tips suggest that Light & Wonder's net income is expected to grow this year, which could signal an improving financial trajectory despite concerns about free cash flow conversion. Moreover, the company's liquid assets exceed its short-term obligations, indicating a solid liquidity position that could help navigate capital expenditure investments without severely impacting cash flows.
While the stock is trading at a high revenue valuation multiple with a Price/Earnings (P/E) ratio of 41.27 and a Price/Book (P/B) ratio of 11.34, these figures may reflect investor confidence in the company's future profitability, as analysts predict Light & Wonder will be profitable this year. Notably, there are many more InvestingPro Tips available that can provide in-depth analysis for potential investors, including insights on profitability and returns over the last decade.
The market capitalization of Light & Wonder stands at $8.91 billion, and the stock is trading at 91.95% of its 52-week high, which could suggest the market is valuing the company's recent positive performance and growth prospects. As investors consider Mizuho's cautious stance, these additional data points and insights from InvestingPro may offer a more comprehensive view of Light & Wonder's financial health and market position.
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