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Apex Legends Changed the Game for Electronic Arts

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Feb. 20 2019, Published 4:08 p.m. ET

Weak results

Electronic Arts (EA) released its fiscal 2019 third-quarter earnings results on February 5 after the markets closed. The company missed revenue estimates in the quarter, and the stock slumped 13.3% on February 6. Electronic Arts reported total net revenues of $1.29 billion in the quarter, compared to $1.16 billion in the corresponding quarter of the preceding fiscal year. Its earnings per share rose from -$0.60 to $0.86. Electronic Arts’ operating cash flows also rose year-over-year.

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Analysts turned bearish

After EA’s revenue miss and lower guidance, several analysts lowered the target prices for the stock. Baird lowered its target price from $154 to $90. Jefferies lowered its to $80 from $90. J.P. Morgan, Morgan Stanley, Credit Suisse, and Jefferies, and several other brokerages lowered their EA target prices as well to reflect its lower guidance.

Apex Legends

However, after the phenomenal response to Apex Legends, brokerages changed their opinions on Electronic Arts. On February 13, BMO raised Electronic Arts’ target price from $96 to $116. A day before, Bernstein raised EA’s target price from $91 to $120. Bank of America Merrill Lynch also upgraded Electronic Arts to a “buy.”

Electronic Arts has received a “strong buy” rating from nine analysts while 13 analysts have rated it a “buy” or equivalent. The remaining ten analysts polled by Thomson Reuters on February 19 have rated Electronic Arts a “hold.” The stock’s mean consensus price target of $97.3 represents a potential downside of 5.5% over its February 19 closing prices. Activision Blizzard (ATVI) is trading 18.6% below its consensus price target.

In the next part of this series, we’ll see how analysts view Take-Two Interactive Software (TTWO) after its earnings release.

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