Video game producer Electronic Arts (EA) has had a bit of a mixed bag in recent days. Its second quarter looked spectacular. We’re well into the holiday shopping season, which is about the best time of year for video game producers.
The company has also made a substantial bounce off some significant lows. I’m still bullish on EA because it’s one of the biggest names around in a popular sector. (See Analysts’ Top Stocks on TipRanks)
Looking at EA’s stock charts for the year so far shows a company that can recover from disaster almost at will. So far this year, EA has seen three substantial losses in its share price. The first came in mid-February when the company saw closing share prices drop by about $20 in the space of three weeks. By the end of April, though, the company had recovered to over $140.
Meanwhile, the second drop hit in mid-September. The closing share price dropped from just over $145 to around $126 in the space of about a week. It took about that same amount of time to recover from that loss.
Finally, the third only recently concluded, as the stock plunged from just over $145 to almost $120 in a little under three weeks. However, the share price bounced off that bottom, and if history holds true, EA will recover before the year is out.
EA has Citigroup to thank for the latest bounce back. Citigroup analyst Jason Bazinet modified his rating on EA from “Hold” to Buy, noting the same thing I just did. The company’s recent stock plunge represents a buying opportunity, Citi said. Though Citi did express some concerns about performance on EA tentpole franchises—especially “Battlefield 2042″—the company should be worth a buy.
Citi’s upward bump in the company’s rating didn’t come without a price, though. The company raised the rating but lowered the price target from $160 to $150.
History Is on EA’s Side
Granted, things haven’t been all sunshine and daisies for EA lately. EA’s original content hasn’t exactly made a splash with gamers. Many of us still remember the deeply flawed release of “Anthem,” after all.
However, quite a bit more is going right for EA than wrong. The stock just saw a major drop that took the share price down to levels not seen since late 2020. It’s already started to rebound off that low, and historically, EA should recover in a matter of weeks.
Plus, there’s good news for EA in other sectors. EA’s sports games continue to do well in the field as eager gamers line up to check out the latest features, players, and so forth. Players for “FIFA 22” soccer are up 16% against this time last year, which is a big step forward in a market that’s starting to see triple-A releases coming out again.
EA’s reliability in releasing sports games should serve it well. There are even some that believe the market is underestimating the value of a prime position in that field.
To top it off, EA pays a dividend. The dividend isn’t exactly high—just $0.17 per share—but it’s reliable. It’s been at that level for over a year now, at last report.
Wall Street’s Take
Turning to Wall Street, EA has a Strong Buy consensus rating. That’s based on 12 Buys and two Holds assigned in the past three months. The average Electronic Arts price target of $172.42 implies 35.2% upside potential.
Analyst price targets range from a low of $150 per share to a high of $200 per share.
Concluding Views
There’s a lot to like about EA. Notwithstanding recent plunges, the company continually puts out a solid line of products. Some are, of course, much better than others.
EA is already building on a successful second quarter which featured earnings of $1.85 billion against estimates calling for $1.76 billion. Those earnings proved to be better than double what they were in 2020, and 2020 was prime time for gaming, thanks to all the lockdowns. Throw in a reliable dividend and a pattern of recovering from losses, and EA makes a good case for itself.
If EA ever were to go away altogether, it would leave a massive hole in the market. That demonstrates just how important it is to the field. That’s also why betting on EA to stick around and do well is a sound strategy.
I’m bullish on a company that has done well previously and is likely to continue doing well. That’s enough reason for anybody to be bullish, as Citi has demonstrated.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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