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Electronic Arts: Has the Apex Legends Frenzy Fizzled Away?

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Electronic Arts

Electronic Arts (EA) has seen upward price action of 25.5% this year. Other gaming stocks (NVDA) (AMD), including Activision Blizzard (ATVI) and Take-Two Interactive Software (TTWO), are in the red.

While Electronic Arts fell sharply after its earnings release last month, the success of the company’s free-to-play game Apex Legends helped turn the tide for the stock.

Electronic Arts has received “strong buy” ratings from nine analysts, while 13 analysts have given it “buys” or some equivalent. The remaining ten analysts polled by Thomson Reuters have given Electronic Arts “hold” ratings. The stock’s mean consensus price target of $101.78 represents a potential upside of 2.8% over its closing price on March 11. Electronic Arts’ target price implies the lowest upside potential among the stocks we’re covering in this series.

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Estimates and valuation

Electronic Arts is expected to post revenue of $5.08 billion in fiscal 2020 compared to $4.78 billion in fiscal 2019. Its EPS are expected to rise to $4.37 in fiscal 2020 from $3.91 in fiscal 2019. The company’s fiscal year ends on March 31.

Electronic Arts is valued at an enterprise value-to-sales multiple of 5.13x its 2019 consensus revenue. Its PE multiple is 24.0x its 2019 expected earnings. The stock’s valuation multiples are the highest among the companies under review in this series.

While Electronic Arts’ Apex Legends has seen 50 million players in the first month of its launch, some brokerages, such as Cowen, see the frenzy fizzling away. Some other observers see the huge spike in Electronic Arts’ stock price as unjustified amid uncertainty related to revenue from Apex Legends.

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