Shares of Electronic Arts Inc
The Electronic Arts Analyst: Omar Dessouky, from BofA Securities, upgraded EA to Buy as "the balance of risk appears more favorable."
Moreover, Dessouky raised the price target from $145 to $150, implying about a 20% upside potential. The new valuation is based on a forward price-to-earnings (P/E) ratio of 19x FY25 earnings.
The raised price target reflects confidence that EA's strength in the EA SPORTS FC franchise will support earnings estimates and close the valuation discount compared to peers.
"We expect results & guidance to dispel investor skepticism over SPORTS FC's ability to grow Y/Y in FY24," Dessouky wrote in the note.
The Electronic Arts Thesis: Dessouky is optimistic about EA's future performance based on the expectation of increased revenue from higher game prices (Standard Edition), a shift towards premium versions (Ultimate Edition), growth in the mobile version, and enhanced monetization strategies for the Ultimate Team component.
"Meanwhile, early launch stats reported by EA support our hypothesis: through its first week of launch, FC 24 player count is up ~10% vs FIFA 23; the number of players in Early Access grew ~25% Y/Y, suggesting an increase in Ultimate Edition uptake," the analyst added. "We raise FQ2 and FY24 Bookings estimates above the high end of guidance."
Furthermore, the analyst expects above-average growth in the PC/Console software market in 2024 and beyond due to the maturation of the ninth-generation console cycle, which will free up more of gamers' budgets for purchasing game software.
Additionally, EA's ability to engage players and encourage in-game spending is seen as a significant factor in capturing a larger share of this spending, contributing to their expected success.
