Wedbush Morgan's Michael Pachter has issued research notes to investors maintaining the firm's 'sell' rating for shares of Take Two, while simultaneously predicting growth and establishing an elevated target price for major publisher/developer Ubisoft due to the company's “aggressive next generation strategy.”
According to Pachter, Take Two's
recently reported first quarter results were “weak”, and represented a “troubling” trending for the company. For the three months ended January 31, Take Two posted sales of $277.3 million and a net loss of $21.5 million, up from the loss of $29.1 million posted in 2006.
Explained Pachter, “As we review Take-Two’s results over the past 12 months, we are more resolute about our SELL rating. With revenues of $1.05 billion, the company generated operating losses of $100 million over the past four quarters, after eliminating all charges for restructuring, extraordinary legal expenses, and other special items.” Adding to this, the analyst further revealed that other competing companies, such as Activision, THQ, and Electronic Arts have “fared far better.”
Continued Pachter: “We continue to believe that at current levels, Take-Two shares are overvalued. In our view, the company faces an uphill battle in turning around its history of generating losses in a strong video game environment.” Currently shares of Take Two are trading at $20.33, with Wedbush predicting a 12 month target price of $12.
Looking elsewhere to Ubisoft, Pachter wrote that the company “continues to gain market share with its aggressive next generation strategy,” and referred to shares of the major video game publisher as “a compelling investment.” In January, Ubisoft
reported a third quarter sales increase of 24 percent to €311 million ($396 million), up from the prior year's €250 million ($318 million).
Because of this, Wedbush has increased its 12 month target price for Share of Ubisoft from €34 to €45, as well as established fiscal 2009 estimates for the company at €910 million ($1.2 billion).
Commented Pachter, “Our estimates imply 18% revenue growth and contribution margin of only 15%. We believe that both are conservative, as we expect industry sales growth of 17% and believe that Ubisoft’s contribution margin is close to 35%.”
He concluded: “In our view, Ubisoft is well positioned to gain market share in FY:09, suggesting that its revenue growth could exceed 20%. We also believe that the company will manage its R&D spending growth to somewhere closer to 16% annually, implying an opportunity for even greater operating leverage.”
