Goldman Sachs Says Buy The Dip In Activision Blizzard

Shares of Activision Blizzard, Inc. ATVI have fallen more than 10 percent in May and investors may want to consider buying the dip, according to Goldman Sachs.

The Analyst

Goldman Sachs analyst Michael Ng upgraded Activision Blizzard from Neutral to Buy with a 12-month price target lifted from $50 to $54. The stock was also added to Goldman's "Americas Conviction List."

The Thesis

Activision Blizzard has underperformed the S&P 500 index since early May in reaction to a disappointing first-quarter report and concerns related to "Call of Duty" development challenges, Ng wrote in a note.

The near-term weakness should be seen as a buying opportunity at a time when the company is accelerating content updates for core brands. "Overwatch" engagement should see an uptick after the introduction of "Storm Rising (PvE)" while early data points suggest monetization improvements for "Hearthstone" in reaction to the "Rise of Shadows" expansion.

Ng said the bullish case for Activision Blizzard is also based on expectations for a "more substantial" content launch and earnings inflection in 2020 and beyond. The company could increase new paid content options for "Overwatch," launch a "Call of Duty" mobile game and release "Diablo Immortal" in 2019 followed by a "Diablo 4" launch in 2021.

There are also rumors of a "Warcraft" augmented reality mobile game, which offers the potential for even more upside to current expectations.

Price Action

Activision Blizzard's stock traded higher by 3.5 percent to $43.78 at time of publication Tuesday.

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"Call of Duty: Black Ops 4" screenshot courtesy of Activision Blizzard.