By Chris Shaw

The recent volatility in global markets has made it seem more a place for punters than investors, but for those who like a flutter an opportunity appears to presenting itself to place a bet on gaming machine company Aristocrat Leisure (ALL).

Both ABN Amro and Deutsche Bank have today upgraded their ratings on the stock to Buy from Hold, agreeing the current earnings pressure from regulatory issues in Japan and delays to the resumption of unit sales in Russia is hiding the fact earnings growth from next year on should be strong.

Deutsche, which has a $14.00 target price on the stock, has cut its current year profit forecast by 6% to $246m to reflect these issues, but is forecasting earnings per share growth of 42% next year and 18% in FY08 after increasing its FY07 profit forecast by 5% to $346m. For FY08 it expects earnings of $408m.

Supporting the growth forecasts is the expectation machine sales in Japan will normalise after falling in recent months as the market deals with a change to regulation 5 machines from the current regulation 4 machines.

ABN Amro agrees and has cut its 2006 profit forecast by 4% to $246m on the expectation of lower sales, while noting there remains downside risk to its current year forecasts as if no sales are achieved this year in Japan its profit forecast would fall a further 5.1% to $236m.

It is confident this remains a temporary issue, particularly as the new regulations require re-stocking of all machines by July 2007. The broker sees the potential for the Australian market to also enjoy some re-stocking as its machine replacement cycle shortens. As a result, the broker has lifted its FY07 profit forecast 2.1% to $350.9m and in FY08 by 1.8% to $402.7m.

Both brokers also point to the potential for the company to achieve sales growth from emerging markets as a source of longer-term upside, with Macau expected to figure prominently in its sights along with an improving level of machine sales in Russia.

Management's decision to resume its share buyback suggests it sees the stock as good value at current levels, both brokers suggesting the move should provide some support for the price given the FY06 result is expected to be somewhat disappointing. ABN Amro has lifted its target price to $14.55, up from $14.25 previously.

The FN Arena database shows the company is rated as Buy six times compared to four Neutral ratings, with an average price target of $14.46. In comparison, Thomson One Analytics suggests the market's median price target for the stock is $13.90, while median earnings estimates for FY07 and FY08 are $333m and $378m.

The stock's last closing price was $12.15.

for      Start        End   Search for any term. If symbols are used company and sector analysis are displayed. Varying start and end dates shows how the company has been rated over time against its present price.