Credit Suisse Maintains Outperform Ratings On Activision Blizzard, EA Following Holiday Season

• While shares of Activision Blizzard, Inc. ATVI and Take-Two Interactive Software, Inc. TTWO are down 8 percent and 6 percent since December 28, Electronic Arts Inc. EA shares have gained 1 percent.
• Credit Suisse’s Stephen Ju maintained Outperform ratings for Activision Blizzard and Electronic Arts, and a Neutral rating for Take-Two.
• The biggest changes to December quarter estimates are for Activision Blizzard, while those for Electronic Arts and Take-Two are modest, Ju stated.

“The biggest changes to the model come for ATVI as we adjust for Overwatch and layer in contribution for KING. For EA and TTWO we have made only modest adjustments to our near-to-medium term unit volume estimates as the product release slate has not changed materially,” analyst Stephen Ju wrote.

Activision Blizzard

The price target for the company has been raised from $40 to $41. Call of Duty Black Ops 3 is expected to be the main driver of Activision Blizzard’s 4Q results. Ju estimates 18.0mm units for the title in FY15.

Overwatch appears poised for a console+PC release, compared to expectations of a PC+online only release. While the acquisition of King Digital Entertainment PLC KING has not yet been completed, its contribution is likely to commence in 2Q16.

The adjusted EPS estimates for 4Q, 2016 and 2017 have been raised from $0.83 to $0.84, from $1.58 to $1.93 and from $1.90 to $2.40, respectively.

Electronic Arts

The price target for the company has been maintained at $90. The FY16 estimate for Star Wars Battlefront is unchanged at 12.85 million units, since management has twice reiterated guidance of 13 million units, Ju mentioned.

He added, “Our sensitivity analysis suggests that each incremental million units sold will add ~$0.07 to FY16 EPS.” The adjusted EPS estimate for 3QFY16 is maintained at $1.76, while the estimates for FY16 and FY17 have been raised from $3.02 to $3.09 and from $3.62 to $3.67, respectively.

Take-Two

The price target for the company has been maintained at $35. The key contributors to Take-Two’s 3QFY16 performance are expected to be the sales of Borderlands Triple Pack and WWE 2K16. The estimates for these are 3.3 million and 3.2 million units, respectively.

“Sales of Battleborn in 1QFY17 will be the next console title that has the potential to move the needle for TTWO shares when released in May 2016,” Ju commented.

The adjusted EPS estimates for 3QFY16 and FY16 are unchanged at $0.51 and $1.19, respectively, while the estimate for FY17 has been reduced from $3.40 to $3.39.