Wedbush Lowers Take-Two Price Target, Expects Strong Q3 Earnings

Take-Two Interactive Software, Inc TTWO is scheduled to report its fiscal third-quarter results Feb. 6. Although the company is likely to report a beat, driven by new release "Red Dead Redemption 2," there is lack of clarity into the 2020 outlook.

The Analyst

Wedbush's Michael Pachter maintained an Outperform rating on Take-Two, reducing the 12-month price target from $150 to $119.

The Thesis

Take-Two could report revenue and EPS at $1.55 billion and $2.90, ahead of the consensus expectations of $1.48 billion and $2.76, respectively, Pachter said in a Wednesday note. The beat is expected to be driven by the $1 billion sell-in of "Red Dead Redemption 2" and other smaller releases.

The momentum in "Red Dead Redemption 2" may allow Take-Two to raise the mid-points of its implied fourth-quarter guidance. The analyst projected revenue and EPS estimates for FY19 at $3.050 billion and $5.25, which is higher than the current consensus.

There will likely be low visibility into Take-Two’s 2020 performance for three more months. The consensus estimates may prove too aggressive if the 2K franchise launch gets pushed out. While there is lack of clarity into the revenue trade-off between "GTA Online" and "Red Dead Online," Pachter said the new NBA deal may exert pressure on the company’s margins.

Price Action

Shares of Take-Two traded at $105.51 at time of publication.

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