Low 'Star Wars' Sales Drive Electronic Arts Downgrade, Says Morgan Stanley

Expectations for Electronic Arts Inc. EA's latest "Star Wars" game were high, and recent disappointing third party data prompted one Wall Street analyst to part ways with his bullish stance on the stock.

The Analyst

Morgan Stanley's Brian Nowak downgraded EA from Overweight to Equal-Weight with a price target lowered from $126 to $120.

The Thesis

Sales of EA's "Star Wars Battlefront 2" are off to a poor start, according to third party data from NPD, Nowak said in the downgrade Morgan Stanley revised its sales forecast of 13 million unit sales in the fiscal third quarter downward to 10 million units.

In addition, EA delayed the rollout of "Star Wars Battlefront 2" microtransactions, Nowak said. It's unlikely they'll appear in the game until the fiscal fourth quarter, the analyst said. But when it the feature does appear in the game, it will be "heavily scrutinized" by the gaming community due to prior backlashes — even if the company takes a conservative approach with its digital monetization plans, he said. 

Given these two negative updates, the analyst's fiscal 2018 EPS estimate was lowered by 3 percent to 13 cents, and Nowak said this will flow through to fiscal 2019 as well.

"Given [that] we struggle to find further material catalysts or sources of upside, we move to the sidelines with an EW rating." 

Price Action

Shares of Electronic Arts were trading lower by nearly 2 percent ahead of Friday's market open.

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Photo courtesy of Electronic Arts.