How Wedbush Views Electronic Arts After Earnings

Electronic Arts Inc. (NASDAQ: EA) released its fiscal second-quarter earnings report after the markets closed on Tuesday. Although the video game giant posted respectable earnings, this still wasn’t enough for investors. Despite this setback, one brokerage firm maintained a positive view on the stock but with some caution.

24/7 Wall St. has included some brief highlights from the report, as well as what Wedbush had to say about the company afterward.

EA posted $0.83 in earnings per share (EPS) and $1.29 billion in revenue. Thomson Reuters consensus estimates had called for $0.58 in EPS and $1.18 billion in revenue. The same period of last year reportedly had $0.62 in EPS and $1.18 billion in revenue.

During the quarter, digital net bookings for the trailing 12 months was a record $3.608 billion, up 11% year over year, and represented 69% of total net bookings.

Looking ahead to the fiscal third quarter, EA expects to see EPS of $0.61 and revenue of $1.375 billion. The consensus estimates are $2.42 in EPS and $2.0 billion in revenue for the quarter.

Wedbush expects significant growth for the foreseeable future, driven by cost discipline, digital sales growth and several key evergreen franchises. Ultimately the firm reiterated an Outperform rating but lowered its price target to $133 from $158, which implies upside of 40% from Tuesday’s closing price of $94.83.

Wedbush believes that third-quarter guidance was particularly weak. While the company provided plausible explanations for the year-over-year decline, its stock has been in free fall as investors feared the worst, and those fears materialized with wimpy guidance.

As a result, the firm is adjusting its estimates to reflect guidance and some modest execution risk. Wedbush detailed this in its report:

For Q3, we are lowering our estimate for revenue to $1,775 million from $2,000 million and for EPS to $1.95 from $2.60. For Q4, we are raising our estimate for revenue to $1,504 million from $1,301 million and are raising our EPS estimate to $1.62 from $1.30. This takes our full year revenue estimate to $5,250 million (unchanged) and our EPS estimate to $4.60 from $4.65. We are lowering our FY:20 estimates for revenue to $5,750 million from $6,000 million, and for EPS to $5.50 from $5.75.

Shares of EA were last seen down 3% at $91.80, in a 52-week range of $89.12 to $151.26. The consensus analyst price target is $139.29.