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On Wednesday, MoffettNathanson downgraded shares of Electronic Arts (NASDAQ:EA) from Buy to Neutral, while setting a price target of $163.00. The firm’s decision comes after Electronic Arts’ stock, which has gained 19.3% over the past year and currently commands a market capitalization of $41 billion, experienced a significant increase following concerns about EA Sports FC earlier in the year. According to InvestingPro data, EA has demonstrated strong momentum with a 5.8% year-to-date return.
In late January, the research firm had raised Electronic Arts to a Buy rating, anticipating that a new game mode might present a short-term setback but also an opportunity for broader monetization. However, Electronic Arts quickly addressed these speculations, indicating that there would be no new game mode but promising to rectify the issues through various optimizations. The company’s strong financial health is reflected in its impressive 79.4% gross profit margin and robust balance sheet, as highlighted in the comprehensive Pro Research Report available on InvestingPro.
These adjustments seemed to have a positive effect, as the company’s stock value improved. MoffettNathanson acknowledged feeling fortunate with the outcome but expressed concerns about the stability of the company’s growth foundations and the predictability of future performance.
Electronic Arts has projected a consistent growth trajectory for FC, supported by the success of its Ultimate Team and the anticipation surrounding the Battlefield franchise. The firm also noted that the market has recognized the company’s efforts to resolve the FC issues, which should contribute to robust bookings growth and margin expansion with the addition of titles like Battlefield, Sims, and Skate.
Despite these positive developments, MoffettNathanson pointed out that Electronic Arts’ stock is now trading at approximately 24 times their estimated earnings per share, which includes stock-based compensation (SBC). Current InvestingPro data shows an even higher P/E ratio of 39x, and the stock appears overvalued based on InvestingPro’s Fair Value analysis. This valuation, according to the firm, suggests that the share price is now much closer to what they consider fair value. As a result, the firm has adjusted its stance to Neutral with a price target of $163, reflecting a more cautious outlook on the stock’s future movements.
In other recent news, Electronic Arts disclosed its fourth fiscal quarter 2025 results, with bookings and operating income surpassing expectations by 15% and 18%, respectively. BofA Securities noted that the company’s bookings reached $1.80 billion, exceeding both their and Street estimates, driven by the success of the EA Sports franchise and the launch of Split Fiction™. The latter achieved sales of approximately 4 million units, nearly double the initial forecast. Analysts have responded to these results with various updates to price targets: Goldman Sachs raised its target to $155, DA Davidson to $150, BofA Securities to $166, and BMO Capital Markets also to $166. Despite these adjustments, most firms maintained a neutral or market perform rating on the stock. DA Davidson projects that Electronic Arts’ net bookings will grow by 6.2% to $7.813 billion by 2026, while BMO Capital Markets forecasts a 7% increase in bookings and a 9% rise in adjusted operating income for fiscal year 2026. Raymond (NSE:RYMD) James highlighted the positive reception of Battlefield and EA Sports FC, indicating potential for continued success, though they maintained a market perform rating due to current valuations. These developments reflect a strong performance by Electronic Arts and a promising outlook for the upcoming fiscal year.
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