Legalization And Digital Transformation Will Expand iGaming Opportunities

Key Takeaways

• Expansion into new regulated gaming markets and digital transformation are driving demand for Light & Wonder's products, supporting future growth and margins.
  
• Focus on proprietary content, cross-platform technology, and recurring revenues is increasing product differentiation and setting up long-term profitability.
  
• Unregulated gaming growth, regulatory risks, weak customer CapEx, intensifying competition, and rising debt burden all threaten the company's long-term revenue, margins, and innovation capacity.

Catalysts

Operates as a cross-platform games company in the United States and internationally.

• Wider legalization and regulation of gaming-especially in U.S. states and new international markets-are creating new addressable markets for Light & Wonder, as evidenced by ongoing expansion of charitable electronic pool tab programs and plans to enter Indiana and the Philippines, supporting future revenue growth.
  
• Ongoing digital transformation and increased online gaming penetration, particularly in North America where iGaming gross gaming revenue grew 25% YoY, underpin demand for Light & Wonder's content aggregation and omnichannel solutions, boosting recurring revenues and margins as digital channels scale.
  
• Investment in proprietary content development, game studio expansion, and cross-platform technology (e.g., DTC platform for SciPlay, regionalized iGaming content) are driving higher product differentiation, customer stickiness, and margin expansion through a mix shift towards higher-margin software/content revenues.
  
• Accelerating recurring revenue streams (e.g., 20 straight quarters of NA premium installed base growth, rising iGaming and SciPlay subscriptions), combined with disciplined operating and capital allocation-including an expanded $1.5B buyback program-set up sustained improvements in earnings per share and long-term free cash flow generation.
  
• Macroeconomic and regulatory catalysts, such as recently passed U.S. bonus depreciation and R&D expense-friendly tax provisions, are expected to spur incremental operator demand for equipment and technology (supporting unit sales and system upgrades), while simultaneously lowering LNW's annual cash tax bill by up to $40-50M, improving both top-line growth and net margins.

Light & Wonder Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Light & Wonder's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.9% today to 17.4% in 3 years time.
• Analysts expect earnings to reach $693.0 million (and earnings per share of $9.4) by about August 2028, up from $349.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $509 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.9x on those 2028 earnings, down from 21.3x today. This future PE is lower than the current PE for the US Hospitality industry at 22.8x.
• Analysts expect the number of shares outstanding to decline by 5.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.32%, as per the Simply Wall St company report.

Light & Wonder Future Earnings Per Share Growth

Risks

• The rapid growth of unregulated sweepstakes gaming in the U.S. has led to direct top-line erosion and increased marketing costs for Light & Wonder's social casino segment, and unless more states regulate or ban these products, revenue and margins for SciPlay could face sustained long-term pressure.
  
• Ongoing regulatory risks and litigation-including active court cases in both Nevada and Australia, with trials expected in 2026-introduce significant potential for legal costs, operational distractions, and share price volatility, all of which may negatively impact net income and investor sentiment over the long run.
  
• The company notes persistent operator apprehension and delays in capital expenditures (CapEx) among their core casino customer base in North America and international markets, often due to macroeconomic uncertainty and evolving tariffs, which could continue to suppress or destabilize revenues from machine and system sales over multiple years.
  
• Despite strategic acquisitions and content investments, Light & Wonder faces growing competitive pressure from both regulated and unregulated digital-native entrants and sweepstakes models, potentially eroding market share in key digital and iGaming verticals; lagging innovation or slow digital transformation would thus compress revenue growth and net margins over time.
  
• Heavy investments, increased share buybacks, and the recent Grover Charitable Gaming acquisition have pushed net debt leverage toward the upper end of management's target range, exposing the company to higher interest expenses and debt-related risks; this may constrain free cash flow and limit the resources available for long-term R&D and further strategic acquisitions, thereby threatening sustainable earnings growth.

Valuation

• The analysts have a consensus price target of $108.364 for Light & Wonder based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $144.0, and the most bearish reporting a price target of just $80.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.0 billion, earnings will come to $693.0 million, and it would be trading on a PE ratio of 14.9x, assuming you use a discount rate of 10.3%.
  
• Given the current share price of $88.52, the analyst price target of $108.36 is 18.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.