EA Touches 52-Week High On Positive Trends, Partnership

Shares of Electronic Arts Inc. (NASDAQ:EA) rallied to a new 52-week high of $122.08, eventually closing a tad lower at $121.97 on Aug 30.

The share price momentum can primarily be attributed to the company’s partnership with NFL for the upcoming e-sports tournament. The company’s better-than-expected fiscal first-quarter 2018 results and consistent launches are other catalysts.

Notably, the company reported adjusted earnings of 36 cents per share in the last quarter that easily beat the Zacks Consensus Estimate of 14 cents. Revenues (excluding deferred revenues) came in at $775 million compared with $682 million in the year-ago quarter. The Zacks Consensus Estimate was $765.9 million.

We believe the current momentum will drive shares. The stock has gained 51.4% year to date, marginally underperforming the industry’s 52.3% rally.

What’s Driving the Stock?

EA is benefiting from its ongoing shift from physical to digital version of video games. The company’s growing digital revenues, especially mobile, is one of the primary growth catalysts. EA’s popular franchises like Star Wars and Battlefield and titles like FIFA and NFL have driven the top line. Additionally, the company’s cost optimization techniques are proving to be beneficial as well.

Moreover, we believe EA’s entry into e-sports, which are live video game tournaments, bode well for its growth. Live games involve higher number of viewers, corporate sponsorships and growing media coverage, which aids top-line growth.

Moreover, the company has a strong pipeline of new launches. These include the sequel of the much popular action packed game Star Wars Battlefront to be released worldwide on Nov 17. The 2017 releases include the likes of Need for Speed: Payback, FIFA 18 for Nintendo (OTC:NTDOY) Switch. EA also recently announced that The Sims 4 will be available on Microsoft’s (NASDAQ:MSFT) Xbox One and Sony’s (NYSE:SNE) PlayStation 4 players worldwide on Nov 17, 2017.

Notably, as consumers spend more on portable devices like smartphones and tablets for playing online games, the growth of mobile games has accelerated. Moreover, compared with the physical platform, digital games are more profitable due to minimum packaging cost. We believe, EA is leveraging the opportunities in the segment.

Estimate Revisions

The Zacks Consensus Estimate for fiscal 2018 increased 0.24% to $4.24 over the last 30 days. Estimates for fiscal 2019 have been steady at $5.07 over the same time frame.

Zacks Rank

EA currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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