Take-Two Interactive Shares Take Off

One analyst notes the stock's underperformance is unwarranted.
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Shares of video-game software makers got a boost Thursday after an analyst upgraded

Take-Two Interactive's

(TTWO) - Get Report

stock.

Take-Two's stock has been trading at a significant discount to its peers due to perceptions of the company being overly dependent on just one hit title and because of a long-running

Securities and Exchange Commission

investigation, noted Prudential analyst Brent Thill, in a research report.

But the company has taken steps recently to address both of those concerns, reaching a

settlement agreement with the SEC and taking significant steps to diversify its software lineup, Thill said.

"We believe ... the current wide valuation gap vis-a-vis the

video-game software group is unwarranted," said Thill, whose company has not done recent investment banking business for Take-Two. Thill upped his rating on Take-Two's shares to neutral weight from underweight and maintained his $28 price target on the stock.

In recent trading, Take-Two shares were up 65 cents, or 2.6%, to $26.15.

Although Thill's report focused on Take-Two, it seemed to buoy shares of the company's rivals as well. In recent trading, shares of

Electronic Arts

(ERTS)

were up 1.7%;

Activision

(ATVI) - Get Report

, 1%;

THQ

(THQI)

, 5.6%; and

Midway

(MWY)

, less than 1%.

The video-game sector has done fairly well in the year to date, with all of the major stocks -- other than Electronic Arts -- up 10% or more. But the companies could struggle later this year and into next as the industry goes through a console transition.

Microsoft

(MSFT) - Get Report

plans to release its updated console, the Xbox 360, this fall, while industry leader

Sony

(SNE) - Get Report

plans to release its next version of the PlayStation console next spring. Such transitions have typically been marked in the past by sluggish sales and increased costs.