Take-Two: Limited Catalysts Until Christmas

While Take Two Interactive Software Inc TTWO has consistently beaten its guidance and the consensus forecasts, making the stock attractive in the near term, Wedbush’s Michael Pachter prefers to remain on the sidelines due to “an unclear long-term release slate.”

The analyst maintains a Neutral rating on the company, with a price target of $48.

Solid Execution

Take Two reported robust third-quarter results, with the upside being more than passed through in terms of higher fiscal year guidance.

The non-GAAP revenue for the quarter came in at $745 million, with EPS of $0.99, well ahead of the guidance, estimates and consensus.

The company raised its FY guidance, now expecting revenue of $1,815 million–$1,865 million and EPS of $1.95–$2.02, ahead of the previous estimates and the consensus expectations.

The estimates have therefore been raised to the high end of the guidance range to reflect continued robust execution.

“Sustained success in mobile is difficult, and an alternate use of capital such as repurchases or other acquisition targets may have made more sense,” Pachter stated, while adding, “We estimate that Social Point adds at most $15 million to revenue and $0.03 to EPS in Q4, so the company’s increased guidance reflects outperformance from its core business.”

In fact, the analyst expects Take-Two to undertake additional acquisitions over the next couple of years, given the company’s large cash balance and management’s commitment to making accretive acquisitions.

Few Catalysts

On the other hand, Pachter pointed out that the company had a relatively light release lineup for the next three quarter, with no major new releases for Q4, Q1 2018 and Q2 2018.

This means that there are few catalysts for Take-Two on the horizon for the next several months.

The analyst expects the company to provide additional details on its holiday releases through the coming months, with greater visibility into Take-Two’s long-term lineup likely in June.