BofA/ML Rides To Rescue EA With Upgrade

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Published: August 1, 2012 2:27 pm

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Electronic Arts Inc. (NASDAQ: EA) was given an intraday rating upgrade by Bank of America/Merrill Lynch after the video game giant’s earnings. The analyst team there raised the rating to Buy from Hold and it now has a slightly lower $16.00 share objective price target. The prior target was $19.00.

The report noted, “EA is down 45% YTD on weak industry sales data and potential for a Star Wars subscriber miss to result in lower FY13 EPS, but from here we think stock could outperform on: 1) solid sports title sales (Football sales could be flat to up in 2013, similar to FIFA improvement the past two years), 2) renewed optimism on EA’s digital revenue growth, and 3) more attractive valuation at 8x ex-cash FY13E EPS or 0.7x EV/Sales. This is not a call that industry sentiment will improve, but is a call that sentiment on EA’s digital business will improve now that Star Wars and Social gaming weakness have been confirmed and are in street outlook.”

The report also said it was a relief that the slightly lowered revenue guidance did not create a lower earnings per share guidance of $1.05 to $1.20 EPS. The report further said of EA, “EA is a leading 3rd party publisher in interactive entertainment industry with a large base of popular IP. We expect EA to realize improving margins as the company’s revenues increasingly come from digital sources, driving double-digit earnings growth and a P/E multiple in the mid-teens.”

EA shares are up 5.5% at $11.65 on more than 9 million shares.

JON C. OGG

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