DA Davidson: Turtle Beach Winning On Secular Shift In Gaming Trends

Investor meetings between D.A. Davidson and the management of headset maker Turtle Beach Corp. HEAR led the sell-side firm to double down on its bullish stance on the stock Tuesday.

The Analyst

Analyst Tom Forte reiterated a Buy rating on Turtle Beach with a $38 price target.

The Thesis

Forte named three areas in which D.A. Davidson has increased confidence in the ability of Turtle Beach's management to execute.

They are:

Exploiting secular shifts in gaming.
Making additional improvements to improve the balance sheet.
Expanding into new markets and broadenening footprint.

“Management frequently reiterated during our meetings its comments from its 2Q18 earnings call that it has not seen a slowdown in console headset growth. This is important when considering its guidance from its 2Q18 earnings call assumed a crest in the current hyper-growth wave (from "Fortnite" and "PlayerUnknown's Battlegrounds" players) in 2H18,” the analyst said.

The company's guidance was "deliberate and thoughtful," Forte said, adding that he anticipates a conservative outlook for the remainder of the year.

Forte continues to remain bullish on Turtle Beach and said it benefits from a recognizable secular shift toward battle royale-style gaming.

“Supporting our thesis, management noted that its research suggested a roughly 80-percent usage rate for headphones in battle royale formats versus roughly 20-percent for non-first-person shooter games. As such, we see headset usage rates increasing as additional games move towards this more social gaming format, regardless of 'Fortnite's' ability to sustain its meteoric growth."