Activision Blizzard Expected To Surge: Analyst Sees Upside In Proposed Microsoft Acquisition

Benchmark Company analyst Mike Hickey named Activision Blizzard Inc. ATVI  as a top pick in the Entertainment & Digital Media sector and set a price target of $90.

Benchmark Price Target: In regard to Microsoft Corp.'s MSFT proposed acquisition of Activision, Hickey said: "We think investors will either be rewarded with an approximate 21% upside to MSFT’s $95 bid or an approximate 15% upside to our FY23 $90 PT if the deal is abandoned."

The analyst estimates that the market is currently pricing a 29% probability of a successful MSFT acquisition of ATVI, based on an adjusted pre-bid price of $71 per share.

According to Benchmark, ATVI is expected to achieve a net booking growth of 30% to $2.131 million in F2Q23 (slightly below the consensus estimate of $2.312 million). Additionally, the analyst anticipated a 35% growth in adjusted earnings per share to reach $0.64 (consensus of $0.86).

Also Read: Microsoft's Bid For Activision Blizzard Receives China's Approval, Joins 37 Regulators Worldwide

The note says guided net bookings are expected to grow at least 30% (consensus 41%), and total segment operating income growth of at least 40% (consensus 67%) for what's left of F2Q23.

The company expects to achieve high-single-digit year-over-year growth in net bookings (consensus estimate of 12%), and high-single-digit growth in operating income (consensus estimate of 13%).

In terms of valuation, ATVI reported $8.9 billion in net cash, generating $2.0 billion in free cash flow on a trailing twelve-month basis, resulting in a 3.7% yield. The company also provides an annual dividend of $0.47.

Using a multiple of 20x, analysts calculated an enterprise value of $72, which, when combined with the net cash position, generates a price target of $90. Benchmark reiterated its Buy rating for ATVI based on this analysis.

ATVI Future Growth: Looking ahead to fiscal year 2024, Hickey's estimates indicate that ATVI is expected to achieve flat net bookings growth of 0% amounting to $9,274 million. This projection falls slightly below the consensus estimate of $9,754 million. Additionally, the analyst anticipates a 4% growth in adjusted earnings per share to reach $3.66, compared to the consensus estimate of $4.28.

Several catalysts are expected to drive growth for ATVI in FY24, like the release of "World of Warcraft," the introduction of Warcraft Arclight Rumble, and the live service content for Diablo IV. There's also the potential for a reset on ATVI's Blizzard China business with a new operating partner.

Price Check: Shares of Activision Blizzard are moving higher on Monday, up 0.14% to $78.71 at the time of writing.

Now Read: Take-Two's CEO On Microsoft/Activision Deal: 'What's Good For Them Is Also Good For The Industry'

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