Benchmark maintains EA stock Buy rating, $163 target despite Q3 woes

On Thursday, Benchmark analyst Mike Hickey maintained a Buy rating for Electronic Arts (NASDAQ:EA) stock, with a price target of $163.00. According to InvestingPro data, EA's stock is currently trading near its 52-week low, with a P/E ratio of 30.1 and a market capitalization of $30.94 billion. InvestingPro analysis suggests the stock is currently undervalued. Hickey commented on Electronic Arts' recent announcement of preliminary results for its fiscal third quarter, which indicated underperformance in net bookings. This was attributed to lower-than-expected results from both Dragon Age and EA SPORTS FC 25. Consequently, the company has adjusted its fiscal 2025 outlook, now expecting a mid-single-digit decline in live services net bookings, primarily influenced by the Global Football segment.

Despite the lackluster performance in the third quarter, Electronic Arts has expressed confidence in its long-term strategy. The company anticipates a rebound and return to growth by fiscal 2026. This confidence is supported by EA's strong financial health, with InvestingPro data showing the company holds more cash than debt on its balance sheet and maintains robust cash flows that sufficiently cover interest payments. InvestingPro subscribers have access to 10+ additional key insights about EA's financial position. Hickey acknowledged that the third-quarter performance did not come as a surprise, as risks associated with Dragon Age and EA SPORTS FC 25 had been previously identified in a Benchmark earnings preview note. In that note, estimates for the third quarter and fiscal 2025 were revised downwards.

The extent of the revisions, particularly for EA SPORTS FC 25, was unexpected, given the strong growth trajectory it had demonstrated coming out of the second quarter. The sudden loss of momentum, especially after a guidance raise for fiscal 2025, has led to questions regarding the franchise’s ability to sustain growth. Hickey noted that while Electronic Arts has medium-term growth potential, the recent weakness in EA SPORTS FC 25—a significant contributor to recurring net bookings—warrants caution.

The analyst concluded by stating that more information was needed to fully understand the challenges faced by Electronic Arts and the company's strategy for future growth. This information is anticipated to be provided during Electronic Arts' earnings call on February 4, 2025. With EA's stock showing oversold conditions according to InvestingPro's technical indicators, investors can access comprehensive analysis and real-time updates through InvestingPro's detailed research reports, which provide deep-dive analysis of EA and 1,400+ other US stocks.

In other recent news, Electronic Arts (EA) has seen significant adjustments in analyst outlooks following disappointing sales figures and a reduction in FY25 bookings guidance. Oppenheimer analyst Martin Yang decreased EA's price target to $140, maintaining an Outperform rating, while Stifel cut EA's stock price target to $133 following weaker-than-expected launches for EA Sports FC 25 and Dragon Age: The Veilguard. Baird also reduced EA's price target to $158 while maintaining an Outperform rating, and BofA Securities downgraded EA's stock rating from Buy to Neutral, slashing the price target to $130.

These adjustments come after EA's announcement of preliminary net bookings of $2.215 billion for the quarter, a 6% year-over-year decrease. Additionally, EA's Global Football franchise is expected to show mid-single-digit declines in FY25, and sales of Dragon Age fell short of expectations by 50%.

Despite these challenges, some analysts, such as Oppenheimer's Yang, believe the stock's risk/reward profile over the next 12 to 18 months remains attractive. However, the recent adjustments in analysts' outlooks reflect the dynamic nature of EA's financial performance and the ongoing market analysis. These are the recent developments in EA's financial landscape.

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