Bank of America has upgraded shares of Electronic Arts (NASDAQ:EA) to Buy from Neutral as they believe that the current discount is unjustified, especially considering the favorable market trends and early indications for fiscal year 2024.
The price target is lifted by $5 to $150 per share. EA stock rose 2.5% on the news.
Shares in this video game maker have been somewhat rangebound since January due to several factors, including weak FY24 guidance, a challenging comparison for EA Sports FC following the World Cup, and a limited launch pipeline.
Furthermore, investors are cautious about what is arguably the most significant rebranding in the history of video games, transitioning from FIFA to EA Sports FC.
However, BofA analysts say that the balance of risk now appears attractive for several reasons:
- The relative valuation of EA is currently near a five-year low, which could indicate that the stock is undervalued compared to its historical performance;
- Preliminary data from the EA Sports FC 24 launch suggests potential upside to Street estimates and guidance, which could be a positive signal for the company's performance; and
- Estimates for FY25 and beyond could see a series of upward revisions as EA benefits from above-trend growth in the PC and console game market in calendar year 2024 and beyond.
“EA’s largest franchises are well-positioned to gain wallet share as it expands modalities of consumption; research has shown that players’ in-game spending is highly correlated with the amount of time spent inside a game’s ecosystem,” the analysts wrote in an upgrade note.