Apps & Software

Top Analyst Raises Price Targets on Sizzling Gaming Software Stocks Before Earnings

This year has truly been one for the record books, and one many of us can’t wait to see in the rear-view mirror. One of the central changes the pandemic brought to all of us was the shutdown of schools and businesses, and the inevitable herding of all of us to our homes to live and work full time.

While it was difficult, there were sectors and industries that saw a huge tailwind from the shutdown. Everything from video/teleconferencing and consumer staples to the increase of online and console gaming. The three leading companies in the software gaming industry look poised to deliver the goods when they report third-quarter results.

A new research report from the gaming team at Stifel raises estimates and price targets on three companies that continue to dominate the gaming arena, and all look like solid ideas for more aggressive growth investors looking for an event-driven potential earnings alpha play.

While all these top stocks are rated Buy at Stifel, it’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Activision Blizzard

This remains a top gaming pick on Wall Street, and Stifel is very positive on it. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide.

The company develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers. Its legacy franchise Call of Duty continues to be hugely popular.

The analyst’s report said this about the stellar third-quarter earnings potential:

Activision Blizzard is scheduled to report third results on October 29th. Based on healthy engagement metrics across the industry (better relative to our previous assumptions), contributions from the Call of Duty franchise, and out-performance for recently released Tony Hawk Pro Skater 1 + 2, we’ve increased estimates. And with expectations for positive fundamental momentum through the balance of 2020 into next year, a perceived beneficiary of the upcoming console transition, and a strong Blizzard pipeline. Our estimates include non-GAAP EPS of $0.67 (vs. $0.32) on net bookings of $1.728 billion (+42%), in line/ahead of consensus (and above guidance). We think a beat is likely, largely due to the Call of Duty franchise.

Investors receive just a 0.51% dividend. The Stifel price target was lifted from $97 to $102. The Wall Street consensus target is $92.53, and the last Activision Blizzard stock trade on Friday was reported at $81.04.

Electronic Arts

This is a leading video game developer that should benefit from not only the continuing rise in new console sales, but the rising trend of mobile gaming. Electronic Arts Inc. (NASDAQ: EA) produces top-selling games and related content and services under the EA brand in various categories, including action-adventure, role-playing, racing and first-person shooter games.

The company is realizing a greater percentage of revenues from digital platforms, which may enhance margins and lead to more sustainable revenue growth. Key franchises for the company include Madden, FIFA, Need for Speed, Battlefield, Star Wars Battlefront, Mass Effect, Dragon’s Age and The Sims.

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