On Tuesday, Deutsche Bank adjusted its outlook on Electronic Arts (NASDAQ:EA), increasing the video game company's price target from $150 to $153, while maintaining a Hold rating on the stock.
The adjustment reflects Deutsche Bank's analysis of Electronic Arts' performance and future prospects.
"We view EA's core business, which is concentrated on annual releases and recurring live services, as a sustainable source of multi-year growth, with secular tailwinds around the growing popularity of sports globally," said the analysts.
The bank noted that Electronic Arts is performing well with its core sports titles and has successfully managed the transition of its largest franchise to EA Sports FC this year.
The bank also observed that Electronic Arts' mobile business is showing signs of stability after overcoming macroeconomic challenges and undergoing a strategic reset. This segment is anticipated to contribute to the company's revenue growth in the future. However, the bank pointed out that Apex Legends, another title in EA's portfolio, is facing ongoing challenges and is unlikely to make a significant contribution to the company's development pipeline in fiscal year 2025 (FY25).
Deutsche Bank's updated model for Electronic Arts takes into account the latest company commentary and outlook. The revisions include a delay in the expected contributions from EA's development pipeline to beyond FY25, stronger growth in live services and mobile, a decrease in full game sales, and an increase in operating leverage across the business. As a result, the analyst's adjusted earnings per share (EPS) forecast for FY25 has been lowered by 3.6%, while projections for FY26-FY27 have been increased by 1.5-3.0%.
The new price target of $153 implies a 13.5% upside potential for Electronic Arts' stock and is based on an 18.9x price-to-earnings (P/E) multiple on the firm's adjusted EPS forecast for FY25, excluding cash.
InvestingPro Insights
Following Deutsche Bank's updated outlook on Electronic Arts (NASDAQ:EA), InvestingPro provides additional insights that could be of interest to investors. Electronic Arts holds a strong financial position with a market capitalization of $36.49 billion and a robust gross profit margin of 77.25% over the last twelve months as of Q3 2024. The company's commitment to shareholder returns is evident, as it has raised its dividend for 4 consecutive years, showcasing confidence in its financial health and future prospects.
One of the InvestingPro Tips for Electronic Arts highlights that the company is trading at a high earnings multiple, with a P/E ratio of 34.16. This suggests that investors may be expecting high earnings growth in the future. Furthermore, the company's liquid assets exceed its short-term obligations, indicating a strong liquidity position that can support ongoing operations and investments.
For investors looking to delve deeper into Electronic Arts' financials and future outlook, there are additional InvestingPro Tips available. These tips include insights on recent analyst earnings revisions and the company's stock volatility. For a comprehensive analysis, interested individuals can use coupon code SFY24 to get an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 to get an additional 10% off a 1-year InvestingPro+ subscription. In total, there are 13 additional InvestingPro Tips listed for Electronic Arts, which can be accessed at: https://www.investing.com/pro/EA.
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