Story updated at 9:40 a.m. to reflect market activity.
Shares of EA fell 0.7% to $29.76 in morning trading.
The bank set a price target of $35 for the video game company. EA lacks near-term catalysts according to Bank of America-Merrill Lynch.
The downgrade comes just two days after the release of the company's much anticipated Titanfall on Xbox One and PC.
Separately, TheStreet Ratings team rates ELECTRONIC ARTS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate ELECTRONIC ARTS INC (EA) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to its closing price of one year ago, EA's share price has jumped by 56.87%, exceeding the performance of the broader market during that same time frame. Although EA had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
- Net operating cash flow has significantly increased by 88.70% to $685.00 million when compared to the same quarter last year. In addition, ELECTRONIC ARTS INC has also vastly surpassed the industry average cash flow growth rate of -0.12%.
- ELECTRONIC ARTS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ELECTRONIC ARTS INC increased its bottom line by earning $0.32 versus $0.21 in the prior year. This year, the market expects an improvement in earnings ($1.31 versus $0.32).
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Software industry and the overall market, ELECTRONIC ARTS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 584.4% when compared to the same quarter one year ago, falling from -$45.00 million to -$308.00 million.
- You can view the full analysis from the report here: EA Ratings Report