Market analyst firm Wedbush Morgan Securities has predicted that, due to strong sales through the first quarter ended June 30, as well as overall impressive industry performance, the firm expects major game publisher Electronic Arts to beat its guidance for the period.
Because of this, the firm has maintained its rating of EA stock as being a "strong buy" ahead of EA's earnings call on August 1st, with a 12-month price target of $60, compared to a current stock price of $45.80.
The firm based its current expectations on the fact that Electronic Arts' first quarter sales were up 26 percent compared to last year, according to NPD sales data, though the company's guidance indicated a decline of 7-18 percent. In addition, sales of 2005's Battlefield 2
for PC, which sold well in Europe in particular, as well as the multi-platform title FIFA World Cup
, which the report noted was a top-seller in Europe for eight weeks, indicated to Wedbush that European sales were likely to be up over last year's Q1 sales of $365 million.
The firm also noted that EA is likely to report an added investment in research and development during the quarter, and that it will most likely only beat its earning guidance by a modest margin, and increase its guidance for the 2007 fiscal year “slightly”. Because of this, Wedbush wrote: "We are raising our Q1 estimates for EA for revenues from $325 million to $370 million... We are raising our FY:07 estimates for revenue from $2.880 billion to $2.915 billion."
The firm noted that it believes Electronic Arts was conservative when reporting its fiscal 2007 guidance, and that the company will “consistently deliver upside to expectations,” and that it expects EA's shares to appreciate over the next six months. In addition, Wedbush also commented that upcoming console launches by both Sony and Nintendo could have a positive effect on EA as well, noting that it views the launches of the Wii and PlayStation 3 as “catalysts” for EA, which is expected to have a number of titles available for the launch of both platforms.
The note also commented that it believes that investors remain skeptical, noting the company's history, as well as operating expenses that have escalated approximately $700 million since fiscal 2004. However, Wedbush concluded by noting that EA has “incurred out-of-period operating expenses, primarily for R&D, and has the potential to deliver significant operating leverage in FY:08, if not earlier.”