The company, which also makes other wildly popular titles like World of Warcraft, Guitar Hero, Tony Hawk and StarCraft, recently became a Zacks #2 Rank (Buy) stock.
Management recently raised its guidance for 2010 following a strong third quarter. The company also has a solid balance sheet, carrying no long term debt.
Third Quarter Results
For the third quarter of 2010, the company saw top-line growth of 14% driven by better-than-expected sales of StarCraft II. From a geographic perspective, sales were particularly strong in Asia Pacific which grew an impressive 81%.
The operating margin expanded from 9.9% to 23.8% due to solid expense management and a favorable product mix.
Adjusted earnings per share came in at 12 cents, beating the Zacks Consensus Estimate by 5 cents.
Outlook
Management raised its outlook for the full year 2010 following third quarter results. The company now expects earnings per share of 74 cents, compared to previous guidance of 72 cents.
The Zacks Consensus Estimate for 2010 is below guidance at 68 cents. This represents a 10% increase over 2009 EPS. The 2011 estimate is currently 75 cents, equating to 9% EPS growth. It is a Zacks #2 Rank (Buy) stock.
Fundamentals
Shares have pulled back a bit over the last two weeks and are near oversold territory.
The stock trades at 16.1x forward estimates, a discount to the industry average of 17.1x. Its PEG ratio is 1.1.
Activision Blizzard has a healthy balance sheet and carries no long term debt. The company paid its first dividend in February 2010. It currently yields 1.2%.
Activision Blizzard is headquartered in Santa Monica, California and has a market cap of $14.4 billion.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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