Street Mostly In The Game On EA After Strong Quarter, Bullish 2020 Outlook

“Apex Legends” helped Electronic Arts Inc. EA to a strong fourth quarter that beat expectations, but it was a bullish 2020 outlook from the company that's keeping investors and sell-side analysts in the game.

Strength from "Apex" and the company’s "FIFA Ultimate Team" soccer game offset weakness in EA’s mobile games to help the company to its earnings beat. The Street was more upbeat about the positive forward outlook from EA management, including expectations of net bookings of more than $300 million from "Apex Legends" in 2020, not even including the possibility of a late-year China launch.

The Analysts

Bank of America Merrill Lynch analyst Justin Post reiterated a Buy rating and a $118 price target on EA.

UBS Securities analyst Eric Sheridan maintained a Buy rating and raised the price target from $115 to $120.

Piper Jaffray’s Michael Olson maintained an Overweight rating, raising the price target by a dollar from $114 to $115.

MKM Partners analyst Eric Handler is Neutral, but raised his fair value estimate on the stock from $100 to $102.

KeyBanc’s Evan Wingren has a Sector Weight rating and maintained a fair value estimate of $106.

More Potential

Post sees more potential for "Apex," including more in-game extras such as maps, characters and skins that players can get, the possibility for new game modes and the possible launch of the game in China. Post raised estimates for Fiscal 2020 bookings by nearly $130 million.

“We were pleasantly surprised with EA’s FY20 guide (we expected a more conservative outlook), continue to like EA’s position for the Free-to-Play transition with licensed sports titles and Apex, and still see upside opportunity in FY20,” Post wrote in a note to investors.

Olson agreed with the optimistic tone around Apex.

“Opportunities remain for the title, including a potential launch in China … as well as a potential launch on mobile, which we believe could significantly increase the (total addressable market) to include non-traditional video gamers,” Olson wrote. “The company noted that 30 percent of Apex players were new to EA.”

Handler and Wingren aren't yet completely sold, with Handler saying EA still has “much to prove in 2020.”

"Show me a story,” Handler said. “We are not entirely convinced a 3 percent to 4 percent revenue outlook for the year is a slam dunk.”

Looking Ahead

“In our view," Sheridan said, "EA is a compelling mix of stable franchises, call options, and (if continued success is achieved) a potentially disruptive free-to-play option in Apex Legends.”

KeyBanc continues "to see a slightly favorable long-term risk/reward on EA... We will look for more proof points of re-acceleration of Apex before getting more constructive.”

EA shares opened Wednesday's session at $99.11, but traded around $93.34 at time of publication.

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Screenshot courtesy of Electronic Arts.