Wells Fargo, Morgan Stanley Upgrade Activision: What You Need To Know About The Microsoft Deal

Zinger Key Points
  • While it's challenging to assess if Microsoft will receive U.S. regulatory approval, the company believes the risk-rewards are compelling.
  • Why two analysts gave Activision shares a $95 price target.

Analysts at Wells Fargo & Co WFC and Morgan Stanley MS each gave Activision Blizzard Inc ATVI an updated price target of $95 per share Monday, following the news the buyout deal tendered by Microsoft Corp MSFT may be blocked.

What Happened: Microsoft is making an acquisition offer of $95 per share. Shares of Activision dropped further from Microsoft's planned acquisition price as investors grew apprehensive that the $69 billion transaction would be blocked by U.S. antitrust regulators. This includes the U.S. Federal Trade Commission, which is likely to file an antitrust action to stop the sale, according to a Politico report from last week.

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The Morgan Stanley Analyst: Matthew Cost mentioned while it was challenging to assess the likelihood that Microsoft's proposed acquisition receives regulatory approvals, the company believed the risk-reward is compelling on a fully standalone basis.

Cost said the investment bank was incrementally bullish on Activision, with its position as a leading diversified gaming publisher and its strength across multiple platforms and genres.

Morgan Stanley upgraded Activision to an Overweight rating with a $95 price target.

The Wells Fargo Analyst: Even though the global antitrust environment is still "uncertain," Brian Fitzgerald changed his rating for Activision from Equal Weight to Overweight and maintained his $95 price target. He said the stock did not accurately reflect the company's potential.

Check out Activision's quote page for more analyst ratings.

Fitzgerald further stated that even at a modest 13.5 multiple to consensus 2023 EBIT forecasts, the stock is worth $76 per share and ATVI will receive a $3 billion breakup fee if the acquisition does not close.

Other Buyers: Berkshire Hathaway owned roughly 1.8% of ATVI at the end of 2021, just before Microsoft announced its intention to purchase the company. Warren Buffett increased his stake more than once in 2022, with shares growing to more than 60 million, or about 7.7% of ATVI. The stock is 1.3% of Berkshire’s portfolio.

ATVI Price Action: Shares of Activision are up 1.42% at $74.51 as of Monday morning at publication. 

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Photo: FellowNeko via Shutterstock

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Posted In: Analyst ColorGamingLarge CapM&AMid CapNewsUpgradesPrice TargetAnalyst RatingsTechTrading IdeasGeneralBrian FitzgeraldMatthew CostMorgan StanleyWells Fargo
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