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Analysts: THQ Geared For Strong FY09 Despite 'Painful Steps'
by Brandon Boyer
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January 24, 2008
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Following yesterday's announcement that THQ has ceased production on its Juiced and Stuntman franchises and closed its Concrete Games studio, analysts from Wedbush Morgan, Lazard, and Stern Agee have all remained upbeat on the publisher's future, despite a sharp fall of the company's stock.
"While this is a painful step," said Wedbush Morgan's Michael Pachter, "we think it positions THQ to grow earnings dramatically in FY:09, unburdened by these balance sheet items."
Though Wedbush has lowered estimates on the company "to reflect significantly higher execution risk, given the company's poor performance in FY:08," Pachter says the company's lineup "is quite strong next year, and the increased write offs of capitalized software and streamlining of projects and should position the company to report operating margins in line with its historical performance next year."
Lazard's Colin Sebastian echoed the sentiments, saying that the publisher "is taking more aggressive steps to pare its product portfolio of lower quality and underperforming franchises, and to focus on proven franchises and titles with better potential, including WWE Smackdown, Pixar (Wall-E), Saints Row, Red Faction, and the new UFC license. While we will continue to review the progress of THQ's F2009 pipeline, at this point we are maintaining revenue and EPS estimates."
Stern Agee's Arvind Bhatia also categorized the developments as "tough" but "a positive for the company's future," adding "FY08 was already being considered a throwaway year, even before the pre-announcement last night and investors were largely focused on FY09 and beyond, in our opinion."
"The good news," he said, "is THQ's FY09 appears to be essentially intact," noting all the aforementioned titles, as well as its forthcoming deBlob franchise, and that "all of the key potential multi-million unit sellers for FY09 appear to be on schedule."
"We feel that management is positioning the company for long term success as it focuses on successful titles," Bhatia concluded. "The amortization charges, title cancellations, and studio closings, while expected to affect the company in the near term, are in-line with management's strategy of more rigorous product review procedures, personnel and product changes, and its review of existing titles to maintain long term product quality."
Despite remaining strong on THQ's future, the market was noticeably shaken by the news, with its stock price taking a hit during morning trading.
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