Electronic Arts Shares Rise on Upgrade
Monday September 12, 1:30 pm ET
Electronic Arts Shares Rise on Wedbush Morgan Upgrade to 'Buy'
NEW YORK (AP) -- Investors snapped up shares of Electronic Arts Inc. Monday after a brokerage upgraded the video game publisher on hopes the upcoming release of the Xbox 360 and continued enthusiasm for the PlayStation Portable will reinvigorate business.
Electronic Arts could also see second-quarter sales rise higher than projected due to the recent release of "Madden NFL" and "NCAA Football," according to Los Angeles-based Wedbush Morgan Securities. The brokerage said retail sales are up about 6 percent so far this quarter, compared with guidance that revenue would fall 12 percent to 16 percent.
Wedbush Morgan analyst Michael Pachter said investors should also take another look at the stock because its been trading below historical levels. He said shares could surge 20 percent within the next 12-months, and set a $66 price target.
"We believe that Electronic Arts' portfolio of content is the deepest in the industry, and the company has continued to add to that content and leverage new products and sequels to older products," Pachter said in a report to clients. "We believe that the company is well positioned to maintain or increase its market share over the next year, and we anticipate that consensus revenue and earnings estimates will be revised higher."
Wedbush Morgan raised the stock to a "Buy" from a "Hold." The securities firm also hiked its second-quarter earnings estimate to 7 cents per share from 5 cents per share. In late July, Electronic Arts projected quarterly earnings of break even to 5 cents per share, and analysts surveyed by Thomson Financial expect earnings of 3 cents per share.
Shares of Electronic Arts rose $3.62, or 6.5 percent, to $59.74 in afternoon trading on the Nasdaq. Its stock has traded in a 52-week range of $43.38 to $71.16, and is down 3 percent year-to-date.
Looking ahead, Pachter said video game publishers should see expansion during the next three months as excitement builds toward the release of the new Xbox from Microsoft Corp. Electronic Arts has also invested heavily in research and development -- which now stands at about 22 percent of annual sales -- to meet demand for next generation games.
Electronic Arts also is expected to benefit from games it makes for the Sony Corp.'s new PlayStation Portable. In addition, the company is seen benefiting from a potential price cut in the PlayStation 2 console.
Another key selling point for the stock is that rival Take-Two Interactive Software Inc. has been having problems. Earlier this month, Take-Two said its loss doubled in the fiscal third quarter, hurt mostly by reserves set aside for returned copies of "Grand Theft Auto: San Andreas," the hit game that came under intense scrutiny for a downloadable hack that unlocked sexually explicit material.
Further, Take-Two delayed the release of its "Bully" title -- causing the company to trim its outlook. Electronic Arts similarly has announced the delay of its much anticipated "Godfather" game, which it has postponed from the holiday season to sometime between March and July.
"Should the game be delayed beyond the quarter, we believe the company will have difficulty meeting consensus revenue expectations," Pachter said, but added management "has been chastened by its recent disappointments" and has been realistic about potential bumps in the road.
The analyst maintained his fiscal 2006 earnings target at $1.59. Wall Street analysts have pegged the company to earn $1.56 per share, and in July the company said it projects a profit of between $1.45 and $1.60 per share. |
