The Upside In Electronic Arts (NASDAQ: EA) Is Too Good To Miss

As equities try to steady themselves after a volatile few weeks, it’s more important than ever for investors to keep choosing high quality names to add to their portfolio; Electronic Arts (NASDAQ: EA) is one such name. The video game maker reported their fiscal Q2 earnings last month that bet analyst expectations on both topline revenue and bottom line earnings per share. In addition to giving investors a solid upside surprise, their bookings for the quarter showed year-on-year growth of more than 100%, an impressive statistic from EA that should help to underpin any decision to start picking up some of their shares. 

The jump in bookings helped drive what was actually the strongest second quarter in EA history and gave management the confidence to raise their forward guidance. This is one of the strongest signals a company’s leadership can give to the street and tells us that they’re confident this isn’t a once off. 

Bullish Comments

Both CEO Andrew Wilson and CFO Blake Jorgensen spoke positively about the months ahead, with Wilson in particular noting “this was the strongest second quarter in the history of Electronic Arts, with more players around the world joining and engaging in our leading franchises, new launches and live services. We’re excited to deliver more amazing experiences this holiday season, and connect hundreds of millions of players around the world”. Jorgensen has highlighted the company’s EA Sports, Apex Legends, and Battlefield 2042 as the key titles in the current line up that should continue to drive user numbers. 

But despite all this bullish momentum, EA shares have fallen as much as 20% since the report and are currently down 15% from their pre-earnings levels. It’s fair to assume much of this softness is as a result of the overall volatility seen in equities in recent weeks, but it also means a decent opportunity has opened up for investors. Because not only is EA performing well and surpassing analyst expectations, but the video game industry as a whole is kicking on nicely. Fresh sales numbers from November showed sales accelerated in October and rose for the sixth month in a row, while setting an October record while they were at it. 

This combination of strong internal numbers with impressive industry momentum, along with a soft share price hasn’t gone amiss. On Monday of this week, the folks over at Citi started off the week with an upgrade to EA shares, moving them from Neutral to a Buy rating. Analyst Jason Bazinet is a fan of the risk/reward profile currently on offer and is of the opinion that the recent weakness in EA shares is a “buying opportunity”. He figures that much of the potential downside from a tougher sales environment in China and the company’s dispute with FIFA is already baked into the share price. 

20% Upside Expected

His price target of $150 suggests there’s upside of some 20% to be had from current levels, and were they to hit it shares would be within a few dollars of their all-time highs. This is the level they failed the breakthrough on several occasions in the past year and once in 2018. Understandably, it will be a key line of resistance that the stock must get beyond in order to allow a fresh rally to begin. On the downside, shares are pretty well protected by long-term support which they’re currently trading along, but can’t stay range-bound forever, so it’s a pretty decent place to work a stop-loss order at.

Investors considering getting involved can do so with the knowledge that EA’s revenue is growing at a triple-digit percentage rate, while the industry that they’re in is continuing to expand to record levels. The fact that shares have traded down in recent weeks does little more than to open up an even better buying opportunity that probably won’t last long. A few similar updates from the likes of Citi’s peers and we could well be looking at the last time EA ever trades below $150 a share.