Electronic Arts Gets Buy Rating Boost, Higher Price Target From Bullish Analyst

Shares of Electronic Arts Inc EA were up 2.96% on Tuesday, currently trading at $128.37.

The Electronic Arts Analyst: Omar Dessouky, from BofA Securities, upgraded EA to Buy as "the balance of risk appears more favorable."

Moreover, Dessouky raised the price target from $145 to $150, implying about a 20% upside potential. The new valuation is based on a forward price-to-earnings (P/E) ratio of 19x FY25 earnings.

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The raised price target reflects confidence that EA's strength in the EA SPORTS FC franchise will support earnings estimates and close the valuation discount compared to peers.

"We expect results & guidance to dispel investor skepticism over SPORTS FC’s ability to grow Y/Y in FY24," Dessouky wrote in the note.

The Electronic Arts Thesis: Dessouky is optimistic about EA's future performance based on the expectation of increased revenue from higher game prices (Standard Edition), a shift towards premium versions (Ultimate Edition), growth in the mobile version, and enhanced monetization strategies for the Ultimate Team component.

"Meanwhile, early launch stats reported by EA support our hypothesis: through its first week of launch, FC 24 player count is up ~10% vs FIFA 23; the number of players in Early Access grew ~25% Y/Y, suggesting an increase in Ultimate Edition uptake," the analyst added. "We raise FQ2 and FY24 Bookings estimates above the high end of guidance."

Furthermore, the analyst expects above-average growth in the PC/Console software market in 2024 and beyond due to the maturation of the ninth-generation console cycle, which will free up more of gamers' budgets for purchasing game software.

Additionally, EA's ability to engage players and encourage in-game spending is seen as a significant factor in capturing a larger share of this spending, contributing to their expected success.

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Image credits: Sergei Elagin on Shutterstock.