Investors should take to the sidelines on Electronic Arts until it can ramp up a more robust slate of video game releases, according to MKM. Analyst Eric Handler downgraded shares of Electronic Arts to neutral from buy, citing a lowered 2024 growth outlook and the likelihood of further margin compression. “Although the depth of EA’s development pipeline remains sizable, we believe a meaningful acceleration in releases will not occur as previously anticipated in FY24, but rather FY25. In addition, we now expect to see operating margin further contract in FY24,” Handler wrote. “As a result, we are now below consensus for bookings and EPS in FY24. Combining these variables with a lack of near-term catalysts, we no longer see sufficient upside in the shares to justify a Buy rating,” he added. MKM lowered its price target of the company to $131 from $149 per share. The new estimate is roughly 5% above Tuesday’s closing price of $124.73. Shares dipped 1.2% in Wednesday morning trading. The analyst expects that a number of new releases expected next year — including Skate, Dragon Age, and new Star Wars and Battlefield games — may be pushed off to 2025. “As such, we are reducing our bookings and EPS to $8.470bn (+5%) and $7.45 (+3%), respectively, from $8.709bn and $8.05, and are now below consensus of $8.538bn and $7.99. With this revision, our FY24 growth forecast is not too dissimilar from FY23,” read the note. While some on Wall Street believe Electronic Arts could make for a strategic acquisition candidate, the analyst expects that the pool of potential buyers has diminished for any acquisitions in the near term. “[We] do not believe anything is imminent,” Handler wrote. —CNBC’s Michael Bloom contributed to this report.
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