Goldman Sees Opportunity In Activision After Gaming Stock Sell-Off

Activision Blizzard, Inc. ATVI reported better-than-expected earnings Nov. 2 and raised its full-year guidance.

The Analyst

Goldman Sachs' Christopher Merwin upgraded the stock from Neutral to Buy and raised the price target from $67 to $73.

The Thesis

Merwin sees the stock as a high-class asset that trades with a discount to peers ahead of a period of accelerating earnings growth that he projects will occur over the next two to three years. (See Merwin's track record here.) 

Goldman raised its EPS estimate for Activision on the basis of potential sequels for games such as "Diablo" and "Overwatch" and the expectation of a Blizzard mobile game, Merwin said. 

The release of the "Diablo" sequel is expected in 2019, and Merwin estimates that 15 million units will be sold. "Overwatch 2" is expected in 2020, he said. Goldman's 2019 and 2020 estimates are now above Wall Street consensus at 4.5 percent and 9 percent, respectively.

The Price Action

Activision Blizzard traded around 2 percent higher Tuesday. It recently pulled back from its 52-week high of $67.03, but rebounded after hitting $57.29 and closed Tuesday at $64.37. 

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Photo courtesy of Activision.