‘Dragon Train’ Injunction Could Pinch LNW Earnings by $70M, Says Analyst
Light & Wonder (NASDAQ: LNW) may lose around $70 million in adjusted earnings before interest, taxes, depreciation, and amortization as a result of the preliminary injunction forcing the business to stop leasing and selling the "Dragon Train" series of slot machines.
In a fresh report to clients on Wednesday, Macquarie analyst Chad Beynon stated as much, which is consistent with the company's forecasts. Speaking about the decision on Tuesday, Light & Wonder informed investors that "Dragon Train" devices accounted for less than 5% of their $1.4 billion 2025 EBITDA projection.
Shares of L&W fell sharply on Tuesday after Aristocrat Technologies was given a preliminary injunction by the US District Court for the District of Nevada, requiring L&W to halt sales of "Dragon Train" slots, the majority of which are sold in Australia. Aristocrat's home country filed the lawsuit, claiming that the L&W game was very similar to its own "Dragon Link" machines.
Light & Wonder's stock increased about 1% on Wednesday, barely halting Tuesday's decline. However, the firm informed investors that it is looking for clarification regarding the injunction and that it will take legal action to possibly correct the situation.
There Are No Short-Term Catalysts for Light & Wonder
Some analysts claimed that the valuation argument for Light & Wonder shares had been reset following Tuesday's decline because the stock had become pricey following a protracted upward run. That might not be sufficient on its own to support a short-term recovery.
"Despite marginal earnings revisions, LNW’s de-rating likely reflects risks on the outcomes from litigation events, management’s credibility, and possible medium-term impacts to volumes,” observed Beynon.
Although he kept his "outperform" rating for the stock, he added that there aren't many catalysts in the near future. His target price for L&W is $117, which is a 27.7% increase from Wednesday's close. Nonetheless, the business is juggling litigation on multiple fronts, which might prevent the stock from rising in the foreseeable future.
“Further to litigation with Aristocrat, LNW also faces litigation from Evolution, with allegations relating to copying math files and payout structures for table games,” added Beynon.
"Dragon Train" is well-liked yet potentially problematic
The "Dragon Train" slots are well-liked in Australia, and prior to the injunction, the series was seen to have the potential to help L&W increase its market share there. But Aristocrat was drawn to "Dragon Train's" success, which may now work against L&W.
Because of its wide range of products, L&W is not overly reliant on "Dragon Train." Aristocrats could take severe legal action, therefore that's a good thing.
“’Dragon Train’ is a top-performing game franchise and has been subject to legal proceedings by Aristocrat since March 2024. We estimate there are ~2k gaming ops installs, generating about US $30m+ AEBITDA, and outright sales that generate about US$40m EBITDA. If successful at trial, we think Aristocrat will want ‘Dragon Train’ to be removed, rather than receiving a royalty,” concluded Beynon.
