Electronic Arts Inc (NASDAQ:EA) stock rose 1.10% (As on October 11, 11:15:50 AM UTC-4, Source: Google Finance) after the company got an upgrade from Bank of America (BofA) from ‘Neutral’ to ‘Buy’. The bank cited unjustified discounted shares and positive early indicators for fiscal year 2024 as reasons for the upgrade, setting a new price target for EA shares at $150 from $145. The upgraded rating comes amid the global success of EA SPORTS FC 24, a soccer game that saw over 11 million downloads in less than two weeks. The first-day user volume reached a substantial 2.2 million, which is anticipated to shape future financial predictions and guidance. BofA analysts argue that EA’s current discounted price is unjustified given its near five-year low worth.
BofA analysts see an investment opportunity. They view EA’s stock as undervalued and anticipate growth based on preliminary data from the EA Sports FC 24 launch and above-trend growth in the gaming market. Firstly, the company’s relative valuation is near a five-year trough. Secondly, early stats from the FC 24 launch suggest upside to Street estimates and guidance. Finally, there could be a string of upward revisions as EA benefits from above trend growth in the PC/console game market in 2024 and beyond, the analysts said.
“We expect results & guidance to dispel investor skepticism over SPORTS FC’s ability to grow Y/Y in FY24,” the analysts wrote. “Early launch stats reported by EA support our hypothesis: through its first week of launch, FC 24 player count is up ~10% vs FIFA 23; the number of players in Early Access grew ~25% Y/Y, suggesting an increase in Ultimate Edition uptake. We raise FQ2 and FY24 Bookings estimates above the high end of guidance.”
The analysts expect the PC/console software market to grow above trend in 2024 and beyond because the maturation of the ninth generation (Gen 9) of video game consoles implies that gamers can shift $4 billion to $6 billion of annual budget back to game software. “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,” they added.
Justifying their higher price target for EA, the analysts said they expect the company’s valuation discount versus its peers to close as more evidence of FC strength solidifies the floor on estimates.
The bank expects upward revisions for fiscal year 2025 estimates due to the projected $293.15 billion global video game market by 2026. EA’s largest franchises are set to benefit from expanding consumption modalities and a strong correlation between in-game spending and playtime.