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Take a pass on Electronic Arts, says Roth

It’s all about the pipeline when it comes to video game developer Electronic Arts (Electronic Arts Stock Quote, Charts, News, Analysts, Financials NASDAQ:EA), according to Roth Capital Partners analyst Eric Handler, who reiterated a “Neutral” rating on the stock in a Monday report to clients. Handler said he’ll be looking for visibility on EA’s promised slate of full games and mobile titles.

Ahead of fourth quarter and full fiscal 2023 financial results from Electronic Arts, due after market close on Tuesday, Handler said he’s expecting earnings to be in-line with estimates and is calling for Q4 revenue of $1,722.4 million, which would be down compared to $1,751.0 generated a year earlier, and EPS of $1.30 per share, which would also be lower than last year’s $1.46 per share.

Handler said the focus will be on management’s outlook for the fiscal year ahead, as per usual. At the moment, the analyst is forecasting fiscal 2024 revenue of $7,430.4 million and EPS of $6.30 per share. 

Aside from the top and bottom numbers, Handler said it’s the development outlook that will be crucial. He noted that about a year ago, EA spoke of over 25 full games and a number of mobile titles in various development stages across 21 EA studios worldwide. But since then, Apex Legends for Mobile along with Battlefield Mobile were shut down, and Handler thinks it wouldn’t be a surprise to see more titles ditched. 

“What keeps us sidelined with EA shares right now is geared towards bookings trends,” Handler wrote. “Specifically, there is a fair amount of uncertainty regarding what games remain in the development pipeline and the timeline for their various releases. In addition, visibility into stabilization for the mobile segment still appears limited. We would be much more constructive towards EA if we felt more comfortable in the company being able to consistently achieve annual bookings and EPS growth of mid-single digits and double digits, respectively, as was the case from FY14-FY20.”

EA’s share price has been sliding over the past couple of years, going from about $145 in early June of 2021 to now around the $125 mark. With his “Neutral” call, Handler increased his 12-month price target on the stock from $112 to $130, appealing to the company’s restructuring initiatives, the potential for earnings upside in the year ahead and rising market valuations.

The $130 target, which at press time equates to a potential return of 3.7 per cent, is based on a 20.5x multiple of Handler’s fiscal 2024 EPS, which is in-line with the analyst’s ten-year average on the stock.

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