BTIG analyst Brandon Ross initiated coverage of video game software stocks Monday.
Rated Activision Blizzard (ATVI) and Take-Two Interactive Software (TTWO) as buy and Electronic Arts (EA) as neutral, positive on the video game industry overall.
“Video game stocks have had a multiyear run as profits have climbed higher and multiples have expanded,” Ross said in a report. “While some investors believe the group is nearing a top, we believe there is still significant upside for publishers.”
Ross set 12-month price targets of Activision at 80 and Take-Two at 142 with no target for EA.
“Game publishers are benefiting from the transformation of video games from stand-alone packaged media to connected entertainment services”, Ross said.
Activision Blizzard hit game this holiday season is “Call of Duty: WWII.” It also is doing well in translating its PC and console game franchises into mobile games and esports, Ross said.
Take-Two is positioned for strong sales of its upcoming Western action game “Red Dead Redemption 2” and its “Grand Theft Auto” franchise, Ross said.
EA should benefit from industry tailwinds, but has faced questions about its execution. For instance, it was forced to halt in-game microtransactions in its big game “Star Wars Battlefront 2” in response to customer complaints. Gamers complained that EA’s microtransactions in the title, released Friday, amounted to a “pay-to-win” scheme.