Can the Titanfall Release Rally These Stocks? - Analyst Blog

It seems funny to me that large video game releases aren't getting the same publicity as say a big budget blockbuster movie. When you look at the numbers behind it, the video games put up numbers that would make Spielberg blush. Grand Theft Auto V brought in $800 million worldwide in the first 24 hours of its release, providing a big boost to the bottom line for Take-Two Interactive TTWO.

Following the September release, Take-Two has seen current year earnings estimates grow from $3.55 to $3.69, helping TTWO achieve a Zacks Rank #2 (Buy). This year, GTA V will be released on PC as well as the new Xbox One and PS4 consoles, making it the gift that keeps on giving for the software maker.

Take-Two stock had a muted reaction to the initial sales number on GTA V in mid-September. The stock chopped around for few months, trading mostly range bound prior to a recent breakout. But still, today TTWO trades about 15% higher than the $18 range it traded before the popular title's release. The break above $19 gives us a good stop loss and the upward sloping 25x5 moving average provides support to the downside. Stochastics are a bit overbought but that's par for the course on a breakout.

The reason why I'm bringing up the point of blockbuster games not getting enough of the limelight is today's release of the much anticipated Titanfall. The game has quite a bit of hype behind it in industry circles. Rolling Stone called it “the most anticipated next-generation videogame of the year.” Think first person shooter, like Halo mixed in with Avitar-style mechs, in this case heavily-armored 24-foot titans. Like any big action blockbuster, the game is filled with explosions, awesome guns, and mechanized weaponry.  

 Hoping to repeat the success of its Halo franchise, Microsoft MSFT needs this pony in the race. Following the release of Xbox One, Microsoft has slowly been losing market share to rival Sony's Playstation 4. The Titanfall release is exclusive to Xbox and PC, so a successful launch could be exactly what indecisive gamers may need to sway them into an Xbox One purchase.

Microsoft is a Zacks Rank #2 (Buy) in an industry in the bottom half of our Zacks Industry Rank. Recently, 12 analysts have revised estimates to the upside for the current year and 8 for next year. Big numbers from Titanfall would definitely help Microsoft's bottom line. Don't expect GTA V type numbers however. Titanfall is a divisive title made to set Xbox One apart from PS4, so almost half of the market is in the dark on this one.

From a technical perspective, Mr. Softee looks pretty decent. Given the relatively low historical volatility of MSFT, don't go looking for a huge move in this giant. The run from a September low around $31 to the peak near $39 in December is about as big of a move we have seen in years. Right here at the $37.50 level, MSFT trades in a bullish trend above its 25x5 and stochastics are not too overbought either. If MSFT gets locked into range-bound trading, look for $35 to be a firm floor.  

Microsoft isn't the only potential beneficiary of a blockbuster day for Titanfall. Electronic Arts EA is publishing Titanfall for the software team from Respawn Entertainment. EA has been a mainstay in the gaming business dating back to the days of Sega Genesis and Super Nintendo. Known for its perennial Madden football franchise and international hit FIFA Soccer, EA is hoping the release can be a boost to earnings.

Currently, EA is a Zacks Rank #3 (Hold) in need of an earnings catalyst to propel the stock into a buy rating. Earnings in the video game business are traditionally “feast and famine” as companies are always looking ahead to the next game introduction for payday. If Titanfall produces anything remotely close to what GTA V brought Rockstar and Take-Two, EA could be looking at a big quarter.

The chart for EA is a bit more exciting than what we saw out of MSFT. This year the stock has already run from $21 all the way up to $29.50 before taking a bit of a breather the last few days. After a big run like this, you can expect a bit of a pullback. However, $28 was a firm top that EA just broke out from, so the pullback may not be as extreme as you'd expect. Given the positively sloping 25x5 down at $27.12, I'd like to see the stock have a larger down day before I began to leg into any position.