Is EA stock a buy?

Ahead of the company’s third quarter results, due January 30, Roth MKM analyst Eric Handler remains neutral on Electronic Arts (Electronic Arts Stock Quote, Chart, News, Analysts, Financials NASDAQ:EA).

The analyst says his biggest issue with EA is the lack of visibility in its pipeline and its lack of consistent execution.

For us to take a more constructive view towards EA, we would like: (1) to see improved visibility into its seemingly deep development pipeline and (2) to gain better confidence in an ability to re-establish consistent annual bookings and EPS growth of mid-single digits and double digits, respectively, as was the case from FY14-FY20. There is an expectation among investors that management will provide some early read commentary for FY25 on its 3Q earnings call, regarding broad based bookings and EPS growth targets along with key game releases and/or drivers. There is no doubt EA has a very deep pipeline of games in development, which should offer a lever to accelerate growth in the coming years. The time line, though, for these games (including multiple Battlefield games, Dragon Age, Mass Effect, The Sims, Skate, Iron Man, Black Panther, NCAA Football, and more Star Wars titles) is very cloudy, and an inflection point could still be another two years away. Not only would some clarity regarding these games prove beneficial, but improved execution will likely be necessary from the various IP before the company is rewarded with long-term multiple expansion.”

In a research update to clients January 22, Handler maintained his “Neutral” rating and price target of $140.00 on EA.

The analyst thinks EA will post EPS of $6.98 on revenue of $7.59-billion in fiscal 2024.

“With low expectations for 4QFY24 and no major releases planned, focus is turning to FY25. We are projecting FY25 bookings and EPS of $7.950bn (+5%) and $7.46 (+7%), respectively (consensus is higher at $8.028bn and $7.81), but with very limited visibility into upcoming game releases/launches, our confidence in our/Street estimates is low. Anticipated new games for FY25 include a new FC tactical, turn based mobile game and NCAA Football. Right now it seems unlikely a new Battlefield or Dragon Age game will make the year. In terms of margin drivers, benefit should be achieved from: (1) FIFA license savings as promotional costs associated with the launch of EA FC and which created an offset in FY24 are reduced; and (2) ongoing cost efficiencies, particularly in mobile.”