The preliminary injunction requiring Light & Wonder (NASDAQ: LNW) to halt sales and leases of the “Dragon Train” series of slot machines could impact the company’s adjusted earnings before interest, taxes, depreciation, and amortization by approximately $70 million.
Macquarie analyst Chad Beynon conveyed this in a new report to clients, aligning with the company’s projections. Discussing the ruling Tuesday, Light & Wonder reiterated its 2025 EBITDA forecast of $1.4 billion, noting that the “Dragon Train” devices comprised less than 5% of that figure.
Shares of L&W plunged yesterday after the US District Court for the District of Nevada granted Aristocrat Technologies a preliminary injunction. This legal action requires L&W to pause sales of “Dragon Train” slots, predominantly sold in Australia, which is Aristocrat’s home country. The litigation was initiated on the grounds that the L&W game is remarkably similar to Aristocrat’s “Dragon Link” machines.
Although shares of Light & Wonder inched up by 1% today, it wasn’t enough to offset Tuesday’s decline. The company informed investors it is seeking clarification regarding the injunction and will explore legal avenues to potentially rectify the situation.
In the aftermath of Tuesday’s decline, some analysts suggested that the valuation of Light & Wonder shares had been reset, following a prolonged upward trajectory that rendered the stock expensive. Such a reset might not be sufficient to prompt an immediate rebound.
Beynon reiterated an “outperform” rating on the stock but noted that there aren’t many near-term catalysts on the horizon. His price target for L&W is $117, implying a 27.7% upside from today’s close. However, ongoing litigation poses additional challenges that could impede a short-term recovery in the stock.
In addition to the litigation with Aristocrat, LNW is also facing legal action from Evolution, which alleges copying of math files and payout structures for table games.
The “Dragon Train” slots have proven popular in Australia and were seen as a potential catalyst for L&W’s market share growth there. However, the success of “Dragon Train” has evidently drawn Aristocrat’s scrutiny, potentially complicating matters for L&W.
L&W, with a diverse product portfolio, is not heavily reliant on “Dragon Train.” Still, Aristocrat could pursue severe legal actions.
“’Dragon Train’ is a top-performing game franchise and has been under legal proceedings by Aristocrat since March 2024,” Beynon added. “There are approximately 2,000 gaming operations installs, generating about $30 million in AEBITDA, and outright sales generating around $40 million in EBITDA. If successful at trial, it’s likely that Aristocrat will seek the removal of ‘Dragon Train’ rather than opt for a royalty,” Beynon concluded.
