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Technology Stocks : THQ,Inc. (THQI) -- Ignore unavailable to you. Want to Upgrade?

To: Andrew C.R. Biddle who wrote (6682)	7/8/1998 1:53:00 AM
From: David Haines	Read Replies (1) \| Respond to of 14266

GKM raises estimates on THQ 2Q: As posted from MF THQ board on AOL: Subject: EPS Estimate Increase Date: Tue, Jul 7, 1998 21:26 EDT From: Rev Shark Message-id: <1998070801261600.VAA00253@ladder01.news.aol.com> 08:06am EDT 7-Jul-98 Gerard Klauer Mattison & Co. (McGowan, S. 212-885-4004) THQ+ (THQI)-"Quest" Sales Exceed Our Forecast; Raising EPS Estimates-BUY July 7, 1998 ______________________________________________________________________________ Price: 30.00 52-Wk Rng: 33.38 - 9.25 Price Target: 35 S&P 500: 1157 Shrs Out/Mk Cap: 7MM/$210 Mil 5YR Est Growth Rate: 20% Div/Yield: --/-- L-T Debt/Capital: 0% Avg Daily Vol: 245,000 ROE (1998E): 39% Float: 4MM EBITDA/Share (1998E): $3.12 FY Ends -- EPS -- Rel. P/E Dec. Curr Prior P/E (S&P 500) 97A $1.35 22.2x 69% 98E* $2.15 $2.10 14.0x 48% 99E $2.60 11.5x 41% ______________________________________________________________________________ Qtrly -- 1Q -- -- 2Q -- -- 3Q -- -- 4Q -- EPS@ Curr Prior Curr Prior Curr Prior Curr Prior 97A $0.12 $0.14 $0.20 $0.84 98E $0.86A $0.21* $0.16 $0.23 $0.84 ______________________________________________________________________________ +Gerard Klauer Mattison & Co., Inc. is a market maker in the security of this company and may have a long or short position. @Quarters may not total due to rounding. *1998 EPS exclude one-time charge of approximately $0.50 per share related to GameFX acquisition. o Sales of "Quest 64," THQI's role playing game for N-64, appear to have exceeded our expectations. We had conservatively assumed the company would ship about 100,000 units of the title in 2Q and an additional 100,000 by year-end. We now believe shipments exceeded 200,000 units in 2Q alone and may total 300,000 units by year-end. We estimate total 2Q sales will exceed $22 million (vs. $12.3 million in the year-ago quarter). We reiterate our BUY rating. o Raising EPS estimate for 1998; greater confidence in future. We have raised our 2Q EPS estimate to $0.21 (from $0.16) vs. $0.14 to reflect stronger sales of Quest 64. As a result, we now estimate full-year EPS of $2.15, compared to our former 1998 estimate of $2.10. In addition, we believe there is upside potential to these new estimates and 1999E EPS of $2.60. o THQI's revenue base is broadening. Although THQI will derive a high portion of its 1998 sales from WCW-licensed wrestling games, we believe the success of Quest demonstrates that its revenues are not excessively concentrated. INVESTMENT CONCLUSION The success of Quest 64 leads us to believe that THQI will post extremely strong EPS growth in 1998 and that its strength will not be too highly concentrated in one product line. Although we are maintaining our 1999 EPS estimate, we believe that establishment of a new brand lends greater visibility to THQI's growth prospects. Our $35 price target implies a P/E multiple of under 14 times 1999 estimated EPS, well below the company's projected growth rate of 20% and the peer group average. Quest 64. THQI's Quest 64 has been in development for over a year and represents one of the few third-party animated 3-D role playing games (RPG) for the Nintendo 64. Nintendo itself has dominated this genre on its platforms in the past, with its Mario and Zelda series. Quest was launched into a relatively uncompetitive marketplace, since Nintendo's Zelda has been delayed until later in the year and its new "Banjo Kazooie" title was not released until several weeks after Quest. Initial retail sales indicate that THQI's total shipments for the year will far exceed the 200,000 we had estimated. We now expect the title to generate net sales of over $12 million, or about 8% of total sales. Perhaps more importantly, there is good reason to believe that Quest sequels may also sell well, so THQI may have developed a new and enduring brand. Raising estimates. We had assumed Quest 64 sales of about 200,000 units for the year, half of which we expected in 2Q. We now expect the figure to approach (and possibly exceed) 300,000 units for the year. The added sales lead us to believe that 2Q EPS will be $0.21, $0.05 higher than our previous estimate of $0.16. (On a fully taxed basis, we now expect 2Q EPS of $0.19, compared with our prior estimate of $0.15). In 2Q97, THQI reported EPS of $0.14, or $0.09 fully taxed. We are maintaining our estimates for 3Q and 4Q; we estimate full-year EPS of $2.15 ($1.96 fully taxed) vs. $1.30 last year (or $1.02 fully taxed). We believe there is upside potential to our estimates, even those we have just raised. We are maintaining our 1999 EPS estimate of $2.60. However, as the company's release schedule for 1999 becomes clearer and if its 1998 results unfold as expected, our 1999 estimate may need to be increased. GameFX writeoffs to be taken in 2Q. Earlier this year, THQI announced the acquisition of GameFX, a privately-held company that had developed promising technology for use in 3-D video and computer games. Although the final accounting has not been announced, we expect THQI to expense a significant portion of the purchase price as research and development costs. We expect the charge to approximate $6 million, which would be about $0.50 per share after tax. The estimates discussed above exclude this writeoff. We are more optimistic about long-term outlook. We are considerably less concerned about the outlook for the year 2000. First, the recently formed joint venture with Jakk's Pacific has given THQI a piece of the WWF wrestling license, which should provide strong sales and earnings in 2000. Second, we now expect video game hardware sales to remain strong through 1999, which may put off the likely industry downturn until 2001. Finally, the early success of Quest indicates that the company may have another brand that could provide profitable growth in the future. Calendar of Upcoming Events Date Event Wk. of July 20 2Q98 EPS $0.21E vs. $0.14