Updated from 4:02 p.m. EST

Once again, mounting evidence of an accounting scandal, this time at Take-Two Interactive ( TTWO), isn't fazing the analyst community.

Take-Two Interactive's CFO Albert Pastino resigned Wednesday for "personal reasons" after the firm restated seven quarters of financial statements and said the Securities and Exchange Commission is probing its bookkeeping.

But for a company that has almost never in its brief history as a publicly traded firm stuck by one of its original earnings statements, analysts continue to show wide-eyed faith that Take-Two will turn things around.

"While I don't like what happened, you have to look at it on a fundamental basis, you have to believe what they say" about the future, noted Richard Zimmerman, an analyst at Commerce Capital Markets, who has a strong buy rating on the stock.

At Pasture

Since Take-Two first warned in December it would restate results, only Jefferies has downgraded the stock. A string of other brokerages including Credit Suisse First Boston, Gerard Klauer Mattison and Wedbush Morgan have all reiterated their buy ratings. U.S. Bancorp Piper Jaffray actually raised its rating to strong buy the day after the announcement. None downgraded the stock on Wednesday. Take-Two has been halted for trade at $18.56 since January.

Analysts' confidence might seem unwarranted, but it isn't unprecedented. Nary a discouraging word was spoken about Enron by Wall Street's research community for the duration of its descent into bankruptcy. And analysts have been similarly reluctant to criticize Tyco International ( TYC) during its stomach-churning tour of the accounting funhouse.

Road Kill
Take-Two hopes sales of its Grand Theft Auto 3 can help put memories of profit restatements in the rearview.

For the full year 2000, the video publisher restated its revenue to $364 million from $387 million and revised earnings to $6.4 million from $24 million, or to 23 cents a share from 88 cents a share.

In December, the company said it would restate its financial results for 2000 and each of the first three quarters of fiscal 2001 to eliminate sales of products that were recognized as revenue and later returned or purchased by the company in subsequent periods. At that time, the company expected only a $12 million to $15 million decrease in 2000 revenue and an 11-cent to 13-cent decrease in earnings per share.

Forward Looking

In a press release Wednesday, the company said it expects to report a first-quarter profit of 90 cents a share on revenue of $280 million. It expects earnings of 23 cents a share on sales of $125 million in the second quarter. For the full year, it is projecting sales of $660 million and earnings per share of $1.63.

Take-Two attributed the increased guidance to strong sales of its hit titles Grand Theft Auto 3 and Max Payne.

Analysts had expected first-quarter earnings of 70 cents a share, second-quarter earnings of 13 cents a share and full-year earnings per share of $1.32.

The question now is whether investors can believe what the company says about the future, especially because this isn't the first time Take-Two has had to restate results.

"With the exception of two quarters, the company has changed or restated results every quarter since it went public," said Marc Cohodes, an analyst at New York hedge fund Rocker Partners, who shorts the stock. (As of Sept. 30, Rocker Partners owned about 9% of TheStreet.com's outstanding shares.)

While Zimmerman said the accounting issues are being addressed and that the change in CFO should help to restore confidence, Cohodes is skeptical.

"The resignation is meaningless because the people responsible for misstating results are still at the company," he said, adding that Pastino had been at the company for only two months.

Crime Pays

Still, some analysts contend that the firm's fundamentals are improving. The company's Grand Theft Auto III game, in which players perform criminal acts to climb the organized crime pyramid, has been selling extremely well since it was introduced last year.

In the month of December, it was the best-selling videogame in the United States and U.K., outselling the Nos. 2 and 3 videogames by a two-to-one margin, according to industry tracker NPD. Results from the videogame, which has sold 2 million units in just three months, weren't included in the just-released fourth-quarter earnings.

In addition, Take Two reported positive operating cash flow of $27.3 million in 2001, compared to negative cash flow of $54.2 million the year before and negative cash flow of 15.0 million in 1999. "Cash flow doesn't lie," argued Zimmerman.

Paul Kaump, an analyst at Dougherty & Co., said he believes these numbers because of the increased scrutiny that has no doubt been given to the results by auditors PricewaterhouseCoopers. In his opinion, the biggest problem for the company right now is restoring "severely damaged credibility."

"If they reported results that matched the projections this year, I wouldn't jump to the conclusion that everything is different now," he said. "There's now a formal investigation and the overhang from class action lawsuits. The company has done significant harm to itself."

Eric Gillin contributed to this story