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Aristocrat share price: why brokers remain bullish

We examine why two of Australia’s top brokers are currently bullish on Aristocrat Leisure’s (ASX: ALL) prospects – even after the recent run-up in the share price.

Aristocrat broker view Source: Bloomberg

Aristocrat share price rebounds

Like the rest of the market, the Aristocrat (ASX: ALL) share price bottomed-out in December, dropping below the $21 per share mark as bearishness ruled the day.

Yet since then, the stock has powered forward, today trades at $34.32 per share and has a number of Australia’s top brokers singing its praises.

Retrospectively speaking, this positive price action is not the most surprising development: with the company revealing a strong set of ‘growthy’ FY19 results to the market last week.

Here, full-year revenue came in 23% higher than it did the year prior at $4.4bn; with earnings (EBITDA) rising in step, climbing 20% to reach $1,597m for FY19. Net leverage was also reduced, and the company bumped up its FY19 dividends to 56 cents per share – a 22% increase on the period prior.

Speaking of the FY20 outlook, the company noted that ‘we anticipate further incremental gains in attractive North American adjacencies. We expect to maintain market-leading share positions across key for sale segments globally.’

On the digital front, Aristocrat’s management said:

‘Across Digital, we anticipate further growth in Digital bookings supported by scaling of recently released new games.’

With these results in mind, we take a look at what two of Australia’s top brokers are currently saying about the stock.

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Macquarie remains bullish: value looks compelling

Macquarie Wealth Management took Aristocrat’s full-year results as a chance to reiterate their overweight rating and lift their share price target on the gaming company to $37.50.

Centrally, Macquarie likes Aristocrat's growth profile, strong balance sheet and robust ability to generate free cash flow. The company's focus on 'rapid' de-leveraging was also viewed favourably.

Not only that, but the investment banked posited that the market is currently valuing Aristocrat at a forward earnings multiple out of step the company’s current fundamentals and growth profile.

That is, while Aristocrat currently trades at a forward multiple of 20x, the investment bank believes a forward PE of 23x – that which REITs and Financials currently trade at – would be more appropriate given Aristocrat’s current prospects.

Citibank: more growth ahead

Citibank took a similarly optimistic view on Aristocrat's recent full-year results, bumping up their price target to $39.50 per share and maintaining their buy rating on the gaming stock.

Though Aristocrat's FY19 profits were boosted by favourable currency and acquisition factors, as well as a lower tax rate, Citi centrally believes there is still room for growth in the medium-term.

Specifically, Citibank upgraded their earnings estimates by 3% and 6% across the next two fiscal years, respectively. In line with these estimates, Citibank pegs Aristocrat's earnings (EBIT) as growing significantly in the years ahead: $1,377m (FY20e), $1,537m (FY21e) and $1,646m (FY21e).

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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