Are Investors Missing An Opportunity In Activision Blizzard?

Two sell-side firms doubled down on their bullish Activision Blizzard, Inc. ATVI stances this week and named upcoming game releases and an e-sports broadcasting deal with Walt Disney Co DIS's ESPN as some of the drivers behind the positive ratings. 

The Analysts

• KeyBanc Capital Markets analyst Evan Wingren maintained an Overweight rating Activision Blizzard with a $90 price target.
• Bank of America Merrill Lynch analyst Justin Post maintained a Buy rating with a price objective of $85. 

The Thesis

The video game maker has new growth opportunities that are underestimated or not included in sell-side estimates for the next two years, KeyBanc's Wingren said in a note this week. (See the analyst's track record here.) 

In the note, Wingren described key potential growth opportunities for the next year. They include the development of up to two new Blizzard mobile games; "Sekiro," "Diablo 4," "Call of Duty" mobile and King advertising.

These games have not been announced or launched, but Wingren said they could contribute $1 in incremental EPS in aggregate if they pan out. 

This year will revolve around the anticipated success of games such as the "Call of Duty" franchise and "Destiny 2," the analyst said. 

"World of Warcraft: Battle for Azeroth" and "Black Ops" will also be important key players, while the Overwatch League is expected to increase incremental monetization, according to KeyBanc. 

Wingren named the following potential long-term catalysts for Activision: 

• Increased comfort with and the inevitable shift to digital game downloads.
• More interest in the Overwatch e-sports league will likely fuel the growth of the game, increasing participation and downloads.
• High-margin revenue from King Advertising.

Activision's deal with ESPN will likely be beneficial for the future of e-sports, said BofA's Post.

“Activision announced a multiyear exclusive broadcasting agreement with ESPN and Disney XD for the Overwatch League," the analyst said.

"The networks have acquired rights to broadcast live TV coverage of Activision’s Overwatch League, including 2017-2018 inaugural season finals this month, for the first time during primetime and on ABC." 

The deal should generate additional licensing revenues, increased broadcast deals and greater viewer exposure, Post said.

Price Action

Activision Blizzard shares were up 0.16 percent at $81.50 at the close Friday. 

Related Links:

KeyBanc Maintains Overweight on Activision Blizzard, Raises Price Target to $90

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