Brean's Todd Mitchell Boosts EA Price Target To $78, Says Most Of Upside Already Priced In
In a report published Tuesday, Brean Capital analyst Todd Mitchell maintained a Buy rating on Electronic Arts Inc. (NASDAQ: EA), while raising the price target from $75 to $78, saying that the company should be able to report in-line results for F1Q16.
"EA had arguably the strongest showing at E3, with Star Wars: Battlefront, a Mass Effect 4 reveal and new Need for Speed, and improvements in game play and graphics across the entire EA Sports portfolio," Todd Mitchell said. The analyst highlighted that Electronic Arts was leading its peers in digital monetization on consoles as well as the crossover into mobile, and both these were helping the company to create "a more consistent earnings profile" and achieve margin expansion.
Mitchell expects Electronic Arts to report in-line F1Q16 results, with net revenue of $640 million and non-GAAP EPS of $0.01, versus $775 million and $0.19 in the year-ago quarter. The company's revenues are likely to have been generated mostly from catalogue unit sales for AAA franchises and their respective DLC extensions, since there were no major releases during the quarter.
Brean Capital expects sales of 1.0-1.5 million units of FIFA 15, generating about $40 million in net Ultimate Team revenue, as well as an incremental 850,000 units of Battlefield Hardline. Mobile revenue is expected to have risen 18 percent to $141 million, driven by the growing Ultimate Team apps. With Now that Electronic Arts is generating digital revenue, its gross margin is expected to have expanded to 75 percent.
Mitchell believes that the fiscal 2016 guidance will prove conservative and that Electronic Arts offers the "cleanest path to upside." The report added, however, that "much of this is priced into the stock."
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