Activision Blizzard Remains On Wedbush's 'Best Ideas' List Ahead Of Q4 Results

Activision Blizzard, Inc. ATVI is scheduled to report its Q4 results after the close on February 9.

Wedbush’s Michael Pachter maintained an Outperform rating on the company, with a price target of $53.

Q4 Expectations

Retaining Activision Blizzard on Wedbush’s Best Ideas List, the analyst mentioned that the company “could earn well in excess of $3.00 by 2018 should it capture King's untapped advertising opportunity and deal synergies, suggesting its stock is significantly undervalued.”

Pachter expects Activision Blizzard’s Q4 results to meet or beat the consensus expectations, with lower than anticipated sell-in for "Call of Duty: Infinite Warfare" being potentially offset by positive momentum across the company’s other franchises and free-to-play titles.

The analyst estimated that "Infinite Warfare" unit sell-in declined 23 percent during the quarter, with the Average Selling Prices (ASPs) rising 10 percent.

The Q4 revenue estimate has been lowered from $2,403 million to $2,378 million, while the EPS estimate has been reduced from $0.83 to $0.76, to reflect the shortfall for Infinite Warfare.

However, Pachter also stated that upside to these estimates would not be surprising, “surprising given management’s history of exceeding guidance.”

Guidance Expectations

In addition, the analyst expects the initial FY 2017 guidance to be well below the consensus expectations, “reflecting a modest top-line decline and EPS within the range of $1.75 – 1.90.”

“We expect the guide to presume 2017 Destiny 2 sales below Overwatch in 2016 at worse margins due to the Bungie royalty,” Pachter pointed out.

Management is expected to guide to modest revenue growth for King, with minimal impact from ads.