Electronic Arts Upgraded After 'Star Wars' Backlash: Here's Why

Shares of Electronic Arts Inc. EA were hard-hit after its much anticipated "Star Wars Battlefront II" game was rocked with controversy and major consumer backlash. But for some investors, this created an ideal buying opportunity, according to BMO Capital Markets. 

The Analyst

BMO Capital Markets' Gerrick Johnson upgraded EA's stock rating from Market Perform to Outperform with a price target boosted from $97 to $130.

The Thesis

The in-game monetization feature in EA's "Star Wars" was viewed by many players as unfair, which in turn "undermined some investor confidence," Johnson said in the upgrade note. (See the analyst's track record here.) 

But the decline in the stock is overdone in light of the unchanged impact to EA's "solid" long-term story, the analyst said. Investors should consider focusing on EA's stable sports portfolio and eSports exposure rather than the "Star Wars" missteps, Johnson said. 

No other genre has "proven to be more stable" than EA's franchise of sports titles and growing Ultimate Team monetization strategy, Johnson said. EA boasts the "most compelling and sensible" eSports strategy of any company under the analyst's coverage, he said. 

Investors should appreciate EA's stability and the cash flow consistency generated from its transformation from physical software sales to digital downloads — which boast higher margins, Johnson said. 

"After the company reports 3Q results in late January, we think investor focus will again shift toward the longer-term opportunities and the stock can continue its march higher." 

Price Action

Shares of EA were up 1.44 percent at $114 Monday afternoon. 

Related Links:

EA Removes Microtransactions From 'Star Wars Battlefront II' Following User Backlash

Activision Analyst Talks E-Sports Ahead Of Overwatch League Event

Photo courtesy of Electronic Arts.