Analysts Doubt THQ

Updated from July 29

Investors shot down THQ (THQI) shares on Friday after two analysts downgraded the stock.

The downgrades followed the video game software publisher's quarterly report on Thursday. Although THQ's results matched analysts' estimates, the company's predicted a much worse-than-expected outcome in its current quarter.

In recent trading, the company's shares were off $1.25, or 6.1%, to $19.15.

THQ is projecting that it will earn $1.10 a share this fiscal year. But after losing 10 cents per share in its just-completed quarter and predicting a 20-cents-a-share loss in its current quarter, the company would have to post $1.40 in earnings in the second half of its year to meet its target, noted American Technology Research analyst P.J. McNealy, in a research report issued Friday.

Meanwhile, the company's outlook implies that about 50% of its revenue will come in the holiday quarter and another 25% will come in its fourth quarter, which ends next March, McNealy noted.

McNealy questioned whether THQ would be able to meet those targets. Those could be impossible targets to hit, he said. Only once in the past five years has one of the major video game software makers taken in 25% of its sales in the March quarter, he said. And the company faces increased competition this holiday season in its core segment of kids games, he said.

"THQ has now truly back-loaded its publishing schedule," McNealy said. "With increased concern about [the company's] ability to execute against plan, we are downgrading THQ from a buy to a hold."

(American Technology Research does not do investment banking and McNealy does not hold shares in the companies he covers.)

McNealy wasn't the only one with an unfavorable outlook on THQ. Piper Jaffray analyst Anthony Gikas changed his rating on the company to a market perform in a research note released Friday from an earlier outperform rating. Gikas noted that THQ could face a crowded market for video games in the March quarter if it and other game makers don't fare as well as expected during the holidays.