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 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).

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