Electronic Arts Delivers In Q2, Setting Up Nicely For Holidays

A day after Electronic Arts Inc. EA delivered an earnings beat for the second quarter, Barclays increased its EPS estimate for the fiscal year 2017 from $3.65 to $3.77. As a result, the firm boosted its target price by $6 from $88 to $94 while maintaining an Overweight rating on the stock.

Analyst Christopher Merwin also boosted his EPS estimate for the fiscal year 2018 from $4.20 to $4.34. The revised price objective is based on the estimated FCF of $5.07 per share for the fiscal year 2018. The analyst ranked Electronic Arts as a top pick in his group.

The brokerage noted that the company’s EPS came ahead of its estimates by $0.11 a share despite some skittishness. Stating that the battle is ready for the holiday season dominated December quarter, the firm expects improved gross margin in the third quarter.

In a research note, Barclays stated, “We believe Star Wars: Battlefront under-indexed on digital downloads (~17 percent of total) with a royalty of 10–12 percent. However, we expect will have 40 percent + digital downloads without any Battlefield 1royalty, and as a result, we are modeling roughly 400 bps of y/y gross margin expansion in F3Q. In FY18, we are modeling another 116 bps of gross margin expansion, as digital downloads likely exceed management's conservative forecast for 5 points of annual mix shift.”

The brokerage sees "Battlefield 1" to sell a minimum of 16 million units and "Titanfall" about 9 million units. As a result, there is a possibility of "Mass Effect" being pushed into the fiscal year 2018.

At last check, the stock was up 2.29 percent to $79.62.