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Wedbush: Electronic Arts Stock To 'Strong Buy'
by Jason Dobson [PC, Console/PC]
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June 2, 2006
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Market analyst firm Wedbush Morgan Securities today upgraded stocks of video game developer and publisher Electronic Arts from "buy" to "strong buy", with a 12-month price target of $60, citing "conservative guidance" and imminent next-gen console launches.
The news follows last week's news from financial firm Piper Jaffray, which informed its investors that it had upgraded EA's stock to "Outperform" from its previous status of "Market Perform" - which in turn spurred a rise in the price of EA shares on the Nasdaq stock exchange.
A research note sent out by Wedbush today indicated that shares of EA are currently trading at multiples well below the low end of the company’s historical average - the company's shares were trading in the $55 region until the beginning of May, when the firm's quarterly loss sent EA stocks diving - they are currently at around $42.
The firm noted that it believes Electronic Arts was conservative when reporting its fiscal 2007 guidance, and that the company's U.S. retail sales in April were up 50 percent, compared to its guidance for total revenues down 7 – 18 percent. The increase was spurred by positive sales of its most recent release, 2006 FIFA World Cup, which is also doing excellently worldwide.
Looking forward, Wedbush commented that upcoming console launches by both Sony and Nintendo could have a positive effect on EA shares: “While we cannot point to a specific catalyst over the near term, we think that the company’s stock will appreciate as we approach the launches of the PS3 and Wii, and think that this appreciation could accelerate should the company deliver upside to its guidance in Q1:07.”
The note also commented that it believes that investors have lost some confidence in the company's management, due to a staggering increase of nearly $700 million in operating expense from fiscal 2004 through 2007. However, Wedbush sees this as a lack of understanding on the part of investors with regards to the console hardware transition and the added costs associated with EA's devotion to research and development. Because of this, the report states that Electronic Arts has the potential to “deliver significant operating leverage in FY:08, if not earlier.”
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