J.P. Morgan Upgrades King Digital Entertainment As It 'Continues To Grow'

J.P. Morgan upgraded King Digital Entertainment PLC

Monday from Neutral to Overweight and maintained a $20 price target. Analysts led by Doug Anmuth made the upgrade due to a compelling risk-to-reward profile. "As King continues to grow its network, it is gaining significant scale benefits around marketing, cross-selling, and data that further distance the company from smaller competitors," according to the analysts. Anmuth was also enthusiastic about the company's five upcoming game launches which were scheduled to begin in Q2. The Candy Crush franchise had a stronger than anticipated tail and Candy Crush Soda Saga was expected to add $165 million to Q4 2015 bookings. Candy Crush Saga cannibalization from Candy Crush Soda Saga was also "lighter than expected" and the "the peak period of cannibalization" had past, according to the analyst note. The analysts projected approximately $1 billion in cash by the end of 2015 despite a $300 million dividend payment in Q1 plus $150 million in share repurchases. Anmuth believed "King's current valuation at 4x 2016E EBITDA, 8x 2016E non-GAAP EPS, and 6x 2016E FCF is attractive compared to console and other digital gaming companies." The analysts raised estimated 2015 EPS from $1.99 to $2.03 and raised 2016 estimates from $1.82 to $1.88. King Digital Entertainment PLC recently traded at $15.26, up 2.42 percent.