Activision Blizzard Still A Buy Despite 20% Share Pop, Says Argus

Shares of Activision Blizzard, Inc. ATVI is still a Buy at Argus even after shares climbed 20 percent following the company’s strong fourth-quarter results, which were powered by "Overwatch" and King Digital’s "Candy Crush."

Video Games

The February 2016 acquisition of King Digital Entertainment helped Activision's foray into mobile casual gaming, the fastest-growing segment of the videogame industry.

The acquisition should also boost Activision's presence in the fast-growing Asia Pacific market, while the company is focusing on downloadable content, e-sports tournament play and consumer products.

“Activision is fighting the long-term secular decline in packaged games with increased online functionality. It is developing expanded, high-margin versions of its franchise games, developing ‘free-to-play’ games for that growing market segment, and introducing new game concepts,” analyst Joseph Bonner wrote in a note.

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Meanwhile, Activision is also extending game life and spurring engagement through periodic releases of additional downloadable content, and increasing its digital revenue.

In 2017, the company's flagship “Call of Duty” game will reflect this new style of play with extension packs for all of 2015's release “Black Ops 3,” and the two 2016 releases “Infinite Warfare” and “Modern Warfare: Remastered.”

The company will also release a “Call of Duty” refresh for the 2017 holiday season, and will launch its long-delayed “Destiny 2” game in the fall.

Analyst's Commentary

That said, Bonner cut his 2017 non-GAAP EPS estimate to $2.00 from $2.14. But, he noted that Activision is a serial outperformer of its own guidance. The company has beaten its own guidance in 21 out of the last 22 quarters, and topped consensus in 19 of the last 22 quarters.

“Over the next five years, we expect earnings to increase an average of 15 percent annually,” Bonner highlighted.

Shares of Activision closed Tuesday’s trading at $44.98. Bonner raised his price target to $53.