A strong portfolio of sports video games and the growth of Apex Legends could help Electronic Arts Inc EA close the gap on rivals according to an analyst upgrade Tuesday.
The EA Analyst: BMO Capital analyst Gerrick Johnson upgraded shares from Market Perform to Outperform and raised the price target from $150 to $168.
The Analyst Takeaways: The return of live sports with fans in the stand, growth of mobile games and the growth of Apex Legends are two of the reasons Johnson is upgrading shares of Electronic Arts and also boosting revenue, EBITDA and earnings per share estimates.
“EA’s Apex Legends has been performing significantly better than we had expected,” Johnson said.
The analyst projects Apex Legends could see fiscal 2022 net bookings of $740 million, up from $620 million in fiscal 2021.
Electronic Arts owns several key annual sports franchises that could see strong engagement after a calendar 2020 that saw sports games underperforming due to a “lack of physical engagement.”
Electronic Arts focus on using acquisitions to strengthen its mobile business is also a positive to the analyst.
The acquisitions of Playdemic and Glu Mobile are expected to help grow the library of games from EA’s mobile division and help boost its development talent team.
“We see the video game industry trending better than many investors had expected coming out of the COVID-19 pandemic.”
Among video game companies covered by BMO, Johnson said EA is the least expensive.
EA trades at 20x fiscal 2023 Street estimates or 18x when excluding cash, according to the analyst.
Peer companies like Activision Blizzard Inc ATVI, Take-Two Interactive Software, Inc TTWO and Zynga Inc ZNGA trade at multiples of 23x fiscal 2023 eps estimates or 21x excluding cash.
EA Price Action: Shares of EA are up 1.57% to $143.60 on Tuesday at publication.
(Photo: Apex Legends via Electronic Arts)
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