Turnaround on Track at Electronic Arts; Stock Hits New 52-Week High
On Thursday morning, shares of video-game publisher Electronic Arts (NASDAQ: EA) hit a new 52-week high of $21.88.
The stock has come a very long way in a short period of time and investors appear confident that a turnaround is underway at the Redwood City, California-based company. Last July, EA hit a 52-week low of $10.77 ahead of a steep loss reported in the third-quarter of 2012 and fundamental concerns over the company's business model.
The outlook for the publisher of hit video-game franchises such as Madden NFL football and FIFA soccer is looking up and investors who purchased the shares last year have already been richly rewarded. The catalyst for the most recent rally in the name was the company's fiscal fourth-quarter earnings results which were released on Tuesday after the closing bell.
Although the company's adjusted profit was below expectations and revenue was only in-line, the stock surged on an upbeat full-year earnings outlook.
Over the last 5 trading sessions, EA has risen almost 23 percent and the stock is now up more than 52 percent over the last year. The latest earnings report from the company was the first under the helm of new CEO Larry Probst who took over the top job after John Riccitiello resigned in the wake of weak financial results.
Probst previously served as CEO of Electronic Arts prior to Riccitiello's hiring in 2007 and originally started working for the company in 1984. Given his significant track record at EA, Wall Street appears to be optimistic about his chances of returning the company to consistent profitability.
For the fourth-quarter, Electronic Arts posted adjusted earnings per share of $0.55 compared to $0.17 in the year ago period. This came in slightly below Wall Street consensus EPS estimates of $0.58. Adjusted revenue for the period was $1.04 billion from $977 million last year, which was in-line with analysts' expectations.
Looking ahead to Q1, EA guided for an adjusted loss of $0.62 per share and adjusted revenue of $450 million. This was well below Wall Street consensus calling for a loss of $0.36 per share on revenue of $542.73 million. The company's full-year earnings outlook, however, came in ahead of current estimates. The video-game publisher guided for a full-year adjusted profit of $1.20 per share on adjusted revenue of $4.00 billion. This compares to current estimates of $1.10 per share on revenue of $4.10 billion.
Although the company's financial guidance was mixed, the positive reaction in the stock is also likely due to a couple of important upcoming catalysts. EA in collaboration with Insomniac Games is expected to release a third-person shooting came called Fuse on May 28th in North America. The game will make its European debut on May 31.
The other major catalyst that investors are looking forward to is the release of next-generation consoles from XBOX and Playstation. Specifically, the PlayStation 4 is expected to be released in time for the holiday selling season and the XBOX 720 is rumored to be due out by November.
The debut of these high-anticipated gaming consoles will trigger an upgrade cycle across the video-game industry with millions of gamers purchasing new titles from companies such as EA and Activision Blizzard (NASDAQ: ATVI). Given the bullish backdrop for the company, the recent breakout in shares of Electronic Arts may be the start of a larger uptrend in the stock.
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