Investing

3 Top Gaming Stocks Could Be Poised for a Big Second Half of 2016

Lee Jackson

Published: June 20, 2016 10:35 am

Last Updated: January 13, 2020 6:37 am

One area of the technology world that usually holds up well regardless of how the rest of the market is doing is gaming, and with good reason. With companies constantly looking for new angles to attract and keep consumers involved in interactive entertainment, the competition remains brisk and new video game players are added to the ranks every year.

With the Electronic Entertainment Expo, or E3 as it’s known, just finished for this year, it looks like the leading companies will stay in the front of the pack. A new research report from Baird notes that the firm’s meetings at the conference reinforce its overall positive sector thesis, as core usage trends remain healthy and improvements in hardware are very positive for the top publishers.

The Baird team likes three top stocks, and all are rated Outperform

Activision Blizzard

This company reported very solid first-quarter quarter results and remains a top pick on Wall Street. Activision Blizzard Inc. (NASDAQ: ATVI) develops and publishes online, personal computer (PC), video game console, handheld, mobile and tablet games worldwide.

The company develops and publishes interactive entertainment software products through retail channels or digital downloads and downloadable content to a range of gamers. The company’s Call of Duty franchise, which has propelled earnings for this industry powerhouse for years lead a strong product inventory along with other favorites like Skylanders and Guitar Hero.

The big news last fall was the company’s purchase of Candy Crush saga creator King Digital Entertainment, and most of Wall Street thinks the buy is an outstanding move for the company and specifically the synergies between the two companies is cited. Many analysts feel that the key to unlocking some monster value is creating and cross-promoting the Activision product inside the King Digital mobile distribution network.

Some analysts feel the company could earn up to $3 per shares by 2018 if it can optimize the King Digital advertising opportunities and unlock synergies. The Baird team notes that the new Overwatch game has blown past 10 million users since its release in late May. They also feel that there is big upside to their original estimate of 6 million units, and they are upping the estimates for 8.5 million and raising the price target on the stock.

Shareholders are paid a small 0.67% dividend. The Baird price target for the stock was raised to $43, and the Thomson/First Call consensus price target is $42.57. The stock closed Friday at $38.08 per share.
Electronic Arts

This leading video game developer should benefit from not only the continuing rise in new console sales, but also the rising trend of mobile gaming. Electronic Arts Inc. (NASDAQ: EA) produces top-selling games and related content and services under the EA brand in various categories, including action-adventure, role playing, racing and first-person shooter games.

The company, which is very well known for its EA sports games like Madden Football, has made the move into mobile play by adapting many of the top franchise titles, which have been popular for years, into the mobile arena.

The company reported solid earnings back in May, and the company’s Battlefield 1 game has had incredible positive feedback. In fact, the video trailer for the new game had an incredible 21 million view in just four days on YouTube. The Baird analysts now think that the company’s current guidance for the game is conservative, and the Titanfall 2 game could also ship 10 million to 11 million units. Some analysts also expect 45% growth in next-generation consoles this year, another added bonus for the company.

Baird has an $80 price target for the stock, though the consensus target is set at $84.66. Shares closed most recently at $74.52.

GameStop

This top retailer also looks to benefit from new releases. GameStop Corp. (NYSE: GME) operates as an omnichannel video game retailer. It sells new and pre-owned video game hardware; physical and digital video game software; pre-owned and value video game products; video game accessories, such as controllers, gaming headsets, memory cards and other add-ons for use with video game hardware and software; and digital products, including downloadable content, network points cards, prepaid digital and subscription cards and digitally downloadable software.

The company also sells mobile and consumer electronics, including smartphones, tablets, headphones and accessories, as well as pre-owned smartphones; personal computer (PC) entertainment software in various genres, including sports, action, strategy, adventure/role playing and simulation; and strategy guides, magazines and gaming-related toys. As of January 30, 2016, it operated approximately 7,117 stores in the United States, Australia, Canada and Europe. GameStop primarily offers its products under the GameStop, EB Games and Micromania names.

The Baird analysts feel that hardware updates and the holiday release slate this year should help the gaming segment. In addition, the second-half hardware refreshes and fourth-quarter high-quality product releases could help drive traffic to the stores.

GameStop investors are paid a large 5.66% dividend. The Baird price target is posted at $42, and the consensus target is at $35.40. Shares closed Friday a $26.15.

New exciting games and better hardware for the players could make the second half of the year outstanding for all three of these top companies. Investors may want buy partial positions, with earnings for some right around the corner.