The share price of Aristocrat Leisure Limited (ASX: ALL) has been on a retreat this week ahead of its profit announcement tomorrow. But the stock could find renewed support if management delivers a profit surprise as tipped by Deutsche Bank.
The stock shed 1% in morning trade to $27.87 as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) holds around break even, taking Aristocrat's loss since Monday to around 2%.
Shareholders shouldn't complain though as the US-exposed gaming machine maker is still ahead by 37% over the past year when the broader market is up 5%.
Thursday's results could send the stock on its next up-leg too as Deutsche Bank's analysts think the company will announce a first half result that's ahead of consensus expectations.
"We expect Aristocrat's half year result could surprise to the upside given stronger than expected performances from the North American Class III and Class II Gaming Ops, Digital, and Australian businesses," said the broker which has a "buy" recommendation on the stock with a price target of $33.90 per share.
"Once again, we believe the recurring revenue businesses will likely drive earnings upgrades with end of period KPIs above market expectations."
Class III and II machines are very similar except in the way the machines calculate winnings, while Digital is social gambling using mobiles and computers (sounds pretty anti-social if you ask me) but doesn't pay out cash as winnings.
What will also bolster sentiment towards the stock are comments from management about trading conditions in the June quarter. This will set the company up for a strong FY19 and the strengthening US dollar will provide a further tailwind to Aristocrat's earnings, added Deutsche.
But it's not a given that Aristocrat can pull a fatter-than-expected profit bunny out of its hat tomorrow. While it's been winning market share in the US, a good result from rival International Game Technology PLC, which showed an increase in its installed base, could translate into a slowing in Aristocrat's US market gains.
Whether the company can beat expectations may drive the short-term performance of the stock, but I think the stock is still well placed to outperform over the medium term, if not longer, given management's track record.
Aristocrat isn't the only stock I like that is leveraged to the US dollar exchange rate. James Hardie Industries plc (ASX: JHX) turned in a market-beating result yesterday, while I am expecting good things from BlueScope Steel Limited (ASX: BSL) and Boral Limited (ASX: BLD).
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