Stifel: Gamemakers Survive 'Fortnite' Ambush, Are A Buy Ahead Of Earnings

"Fortnite" has taken steady shots at long-leading game publishers, but analysts expect legacy contenders to escape this quarter’s assault relatively unscathed.

The Ratings

Stifel Nicolaus analysts Drew Crum and David Pang maintained a Buy rating on:

• TAKE-TWO INTERACTIVE SOFTWARE, INC Common Stock TTWO and cut the price target from $135 to $131;
• Electronic Arts Inc. EA with a $141 price target; and
• Activision Blizzard, Inc. ATVI with a $77 price target.

The Activision Blizzard Thesis

Despite a “less compelling” valuation, Activision Blizzard is considered a core holding for longer-term accounts, according to Stifel. 

“We see 'Call of Duty' and 'Candy Crush' serving as key growth drivers for the period, more than offsetting any negative impact from 'Fortnite' cannibalization,” Crum and Pang said in a note, adjusting select franchises with more conservative estimates.

Activision Blizzard reports May 3 and Stifel anticipates non-GAAP earnings per share of 36 cents on net bookings of $1.31 billion.

The EA Thesis

Stifel expects EA to post year-over-year top- and bottom-line gains on Live Services growth of more than 20 percent, driven largely by “FIFA Ultimate Team.”

EA reports May 8, and the analysts forecast non-GAAP EPS of $1.16 on net bookings of $1.245 billion.

They also anticipate an update on capital allocation favoring buybacks over dividend increases, as well as conservative guidance accounting for investment spending, “Fortnite” cannibalization and a crowded release calendar for the second half of the year.

“We're particularly bullish on FY2019, but at present view the FY2020 lineup as relatively light,” Crum and Pang said. 

The Take-Two Thesis

Stifel advises buying Take-Two on recent weakness and in spite of near-term risk.

The analysts lowered their quarterly estimates on the basis of key franchises they said either began to moderate or suffered “Fortnite” cannibalization. A delayed release of “Borderland 3” and a more severe net bookings decline for “Grand Theft Auto” merited a similar cut to 2019 forecasts.

Take-Two reports May 16 and Stifel anticipates non-GAAP EPS of 59 cents on net bookings of $432 million. Key metrics include total digital growth and recurrent consumer spending, Crum and Pang said. 

Price Action

EA was up slightly at $117.48 at the time of publication Monday; Activision Blizzard was up 0.29 percent at $65.98; and Take-Two was up 0.55 percent at $99.17. 

Related Links:

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"Fornite" screenshot courtesy of Epic Games.