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Sky-High 'Star Wars Battlefront' Expectations Mean Good News For This Stock

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Sky-High 'Star Wars Battlefront' Expectations Mean Good News For This Stock
  • Shares of Electronic Arts Inc. (NASDAQ: EA) have gained more than 50 percent year-to-date and more than 115 percent from a year ago.
  • Eric Handler of MKM Partners sees further upside in EA's stock as he upgraded the name to Buy with an $82 price target.
  • Handler cited a better than expected debut for the Star Wars (beta) title and "solid" carry-over demand into next year.

Shares of Electronic Arts have surged higher by more than 115 percent over the past year. While such a move may prompt analysts to recommend taking some profit off the table, Eric Handler of MKM Partners is recommending investors buy the stock.

Handler upgraded shares of EA to Buy from Neutral with a price target raised to $82 from a previous $73 following what he suggested to be a "record turnout" for the recently completed Star Wars Battlefront beta.

Handler continued that the recently completed beta attracted nine million players which forced him to assume a higher outlook for the company. Accordingly, the analyst raised his third quarter earnings per share estimate to $1.82 from $1.80 and also raised his fourth quarter estimates to $0.58 from a previous $0.54. Looking past the next two quarters, the analyst updated his sales expectations for the Star Wars title to 13 million in fiscal 2016 from a previous estimate of 11.5 million units.

EA isn't solely relying on the success of the Star Wars title as it has a "strong launch slate" of games in fiscal 2017 including a new DICE Studio Battlefield game, Mass Effect: Andromeda and Titanfall 2. At the same time, the company will also benefit from a "solid" carry-over demand and digital content from the Star Wars title.

Finally, Handler added that EA's margin expansion "remains healthy" and should continue growing in fiscal 2016 to 71.5 percent from 71.0 percent in the prior year and nearly triple the level from fiscal 2013.

Bottom line, EA's "strong" line-up of titles over the next 18 months should drive "continued financial outperformance."

 

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