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EA Stock: A Value Pick In Gaming?

Electronic Arts (EA) took another big hit to the chin this week, amid mounting pressures across the gaming industry.

The company’s widely anticipated Battlefield 2042 game is getting delayed. EA pointed the finger at disruptions caused by the ongoing COVID-19 pandemic.

The unexpected delay to the October 22 launch could push what would have been a likely success a month or so down the road, with an open beta test that’s expected in the lead-up to a November 19 launch.

Amid rampant market volatility concentrated on technology stocks, the delay was probably the last thing EA needed, with the stock doing nothing thus far in 2021.

Despite this, I am bullish on the stock. (See Insiders’ Hot Stocks on TipRanks)

EA: Still Steady

Electronic Arts is arguably one of the steadier players in the gaming scene these days.

Steady cash flows come from regularly scheduled releases such as annual sports games, including NHL 22, FIFA 22, and non-annual, but somewhat frequent titles like Battlefield and UFC.

Indeed, the frequency of such releases makes it easier to project the firm’s future cash flows. With smash free-to-play (F2P) hit Apex Legends thrown into the mix, which could have a very long shelf life, EA undoubtedly has all the makings of a steadily appreciating cash cow in an otherwise turbulent industry.

Despite the predictable nature of titles, some are questioning if the firm is worthy of its 6.4 times sales multiple. Even after flatlining for 2021, the stock still isn’t cheap, and it may require more time to grow into its multiple following the blow of the Battlefield 2042 delay announcement.

Furthermore, if pandemic disruptions can delay such an important title, could other games in the pipeline also have a high chance of suffering the same fate? Or worse, running the risk of a buggy launch similar to the one suffered by CD Projekt Red with Cyberpunk 2077?

In any case, it’s clear that EA needs more than just Apex Legends to pull its stock higher as industry conditions worsen. As COVID ends, people will be putting down the controllers, and the fight for remaining gamers could intensify, making the Battlefield delay so ill-timed.

Titles Due for Refresh

EA’s relatively predictable release schedule has its drawbacks. Annual titles can get stale, and if there are no significant reasons to upgrade other than roster updates, such titles can be a tougher sale over time.

Fortunately, with a new slate of next-gen consoles continuing to roll out across homes, many of EA’s annual releases are poised to feel fresh again. Pent-up demand for truly next-generation EA titles could have the potential to be much larger than expected.

With many such titles jumping onto the Frostbite Engine, the year ahead could be brighter than investors expect, especially once the chip shortage clears, and the average consumer can finally get their hands on the latest Xbox or Playstation console.

If anything, more people could potentially have more consoles hooked up to their TVs once Battlefield 2042 is finally ready to go, whether it be in late November, or closer to the holiday season. As such, a delay could work out to a positive, even as most others view it as a negative.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, EA stock comes in as a Strong Buy. Out of 18 analyst ratings, there are 15 Buy recommendations and three Hold recommendations.

The average EA price target is $171.43. Analyst price targets range from a low of $148 per share, to a high of $200 per share.

Bottom Line

EA has done a somewhat decent job of balancing its frequently released franchises with new, albeit riskier franchises, like Apex Legends.

Making big bets on creative and innovative new titles could be vital in bringing EA stock to the next level.

Licensed games, like sports titles, or old franchises, like Battlefield, while profoundly profitable, may not be enough to keep users really excited as the economy reopens.

Still, next-gen consoles are on the horizon, and will be a boon to EA’s annual titles, perhaps making them the freshest they’ve ever been.

Disclosure: Joey Frenette owned shares of Activision Blizzard at the time of publication.

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