William Blair & Company has issued a statement revealing that the Chicago-based investment firm has initiated coverage of THQ, labeling the publisher's stock with a “outperform” rating and company profile of 'aggressive growth.'
The firm also notes expectations of growth for THQ, with analyst Ralph Schackart estimating that THQ will earn $1.21 per share in 2007 and $1.36 per share in 2008. Earlier this month, THQ announced its third quarter financial results
ending December 31st, 2006, during which the company reported a 32 percent rise in profits, beating market expectations.
Looking ahead, THQ announced in January that it anticipates sales of around $146 million for the quarter ending March 31, with profits of $1.00 per share on sales of around $1 billion for the entire year. For the fiscal year 2008, the publisher forecast at the time profits of $1.11 to $1.21 per share, on sales of between $1.12 billion to $1.15 billion.
Commented Schackart, “We believe THQ is well positioned to experience multiple expansion, to a range from 20 times to 30 times, during the upcoming cycle given its stronger balance sheet, growing stable of owned properties, and ability to take market share, scale margins, and continue to deliver above-market growth.”
“In addition, we believe THQ’s multiple can expand to roughly 35 times (or higher) if the development of incremental market opportunities (in-game advertising and micro-transactions, among others) materializes for the industry,” added the analyst, “collectively representing a $7 billion incremental market (for THQ) beyond the projected $16 billion publishing market for the United States and Europe.”
Because of these factors, William Blair & Company believes that THQ should be able to continue upon its favorable path, delivering strong stock returns for the firm's clients.