Lottery (ASX:TLC) is expected to deliver a largely in-line fiscal year 2026 result, with weaker second-half jackpots weighing on lottery revenue but continued digital penetration, margin expansion and potential game changes supporting the longer-term outlook, Jefferies said in a note on Monday.

Jefferies cut its fiscal year 2026 lotteries revenue forecast by 4% on a weaker second-half jackpot cycle.

The research firm forecasts second-half earnings before interest and taxes of AU$318 million and underlying net profit after tax, before significant items, of AU$178 million, both slightly below Visible Alpha consensus estimates.

It expects the company's variable contribution margins to expand 75 basis points sequentially on a stronger jackpot mix and higher digital penetration, with management likely to focus on operating leverage and efficiency rather than operating expense guidance.

Jefferies believes the recent Powerball ticket price rise demonstrates strong pricing traction, supporting further increases, while any OzLotto pricing, game, or product updates would likely be viewed positively by investors.

It projects leverage to rise temporarily in the first half of fiscal 2027 due to the AU$1.2 billion Victorian license payment, while forecasting net debt of AU$2.3 billion by the end of fiscal 2026.

Jefferies maintained its hold rating on Lottery and cut its price target to AU$5.60 from AU$5.70.