KeyBanc Cautions Against Buying The Dip In Electronic Arts

Investors looking to buy the dip in Electronic Arts Inc. EA may want to reconsider given a low visibility moving forward, according to KeyBanc.

The Analyst

KeyBanc Capital Markets' Evan Wingren downgraded Electronic Arts from Overweight to Sector Weight with no assigned price target (prior price target of $137).

The Thesis

Electronic Arts peaked north of $150 per share in the summer months but has since dipped below $100 per share and investors should avoid buying the stock for five reasons, Wingren said in the note.

There's no reason to be "comfortable" with the company's progress in growing its live service based on delays in both "Battlefield V" and "Anthem."
Global search volume for "FIFA Ultimate Team" has dropped from a year ago despite the World Cup taking place this year. The "FIFA" franchise accounts for around 40 percent of total revenue and while the game can grow as a franchise there is reason to believe it will occur at a slower rate.
EA's fiscal third quarter (December ending) could show a sequential deceleration in the top-line although the company could also report upside to fiscal second quarter EPS guidance.
Multiple studio heads and game directors recently left the company in what's becoming a "worrisome" trend. While the argument can be made the personnel changes are for the better, it could also signal less confidence in the pipeline of games and change is needed.
Despite trading at 17 times calendar year 2019 EPS, which represents a discount to peers at 21 times, the near-term risk-reward profile for the stock is more balanced at current levels given multiple concerns moving forward.