Activision Blizzard, Take-Two Interactive Get Overweight Ratings From Wells Fargo

Activision Blizzard offers 'investors exposure to long-term secular growth trends in the global video game market,' says an analyst.
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Activision Blizzard  (ATVI) - Get Report and Take-Two Interactive Software  (TTWO) - Get Report were featured in a research note by a Wells Fargo analyst who initiated coverage of the electronic gaming companies with overweight ratings.

Activation Blizzard was off 4.6% to 58.79 Tuesday, while Take-Two Interactive Software was down 1.6% to $119.35.

Analyst Brian Fitzgerald, who also set a $75 price target on Activation Blizzard, said the Santa Monica, California-based company "offers investors exposure to long-term secular growth trends in the global video game market via a portfolio of seasoned franchises with tens of millions of loyal fans."

"These include 'Call of Duty,' which topped the AAA video game best-seller charts in the U.S. for five of the past six years, and 'Candy Crush,' which is one of the top five grossing mobile games of all time," Fitzgerald wrote. "We think ATVI’s four strategic growth pillars and wholly owned-IP are the right recipe for relatively low-risk growth in a frequently unpredictable, hit-driven video game market."

Activision Blizzard, Fitzgerald said "has demonstrated success in expanding the market for its IP with 'Call of Duty Mobile' and Overwatch League eSports, two new businesses that can bring hundreds of millions of new gamers and viewers into ATVI’s ecosystem."

Fitzgerald set a price target of $150 a share for Take-Two Interactive Software, saying the New York-based company "could be the last mega-product cycle story available among Video Game stocks."

"At $7B lifetime sales & counting, ('Grand Theft Auto V'), released in 2013, is the top selling video game of all time, and potentially the most lucrative media product ever created," he said. "We think a successful release of GTA VI would raise the steady state level of net bookings at TTWO by 33-50%, with significant OpEx leverage boosting operating income through the $600MM ceiling."

In addition, Fitzgerald initiated coverage of Electronic Arts  (EA) - Get Report with an equal weight rating and $120 price target, noting that "as aggressive investment in new live services IP should help provide the needed multiple expansion to drive EA’s stock returns."

The analyst also initiated cover of Zynga  (ZNGA) - Get Report with an equal weight rating and $8 price target, and Ubisoft  (UBSFY)  with an equal weight rating and EUR 80 price target.