BMO Upgrades Take-Two Interactive, Calls Video Game Stocks 'Safe Havens'

Video game stocks could be seen as "safe havens" for investors, which suggests the bearish case for Take-Two Interactive Software, Inc TTWO's stock can no longer be justified, according to BMO Capital Markets.

The Analyst

BMO's Gerrick Johnson upgraded Take-Two from Underperform to Market Perform with a price target lifted from $95 to $110.

The Thesis

The video game sector is "quite defensive" against economic downturns as it represents one of the cheapest forms of entertainment when considering cost divided by the time consumed, Johnson wrote in a note. In addition, video games could emerge unscathed from trade wars as the sector is mostly immune from import tariffs as a digital code is not taxed at borders.

These factors bode well for Take-Two, which boasts a "robust" pipeline of video games, including "Borderlands 3" and the "Outer Worlds" in fiscal 2020 followed by a potential "BioShock" the following year along with an eventual new "Grand Theft Auto" game.

Johnson said the video game industry could become a bigger target for acquisitions by larger media, tech or entertainment companies. A potential acquirer is likely interested in buying exclusive video game content along with a portfolio of intellectual properties they can monetize.

Price Action

Shares of Take-Two were trading higher by 2.3 percent to $108.44 at time of publication.

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