On Wednesday, Stifel, a financial services firm, increased its price target on shares of Electronic Arts (NASDAQ:EA) to $165 from $163, while keeping a Buy rating on the stock. The firm's analysis suggests that the first quarter of fiscal year 2025 (FY1Q25) could mark a low point for EA in terms of key financial metrics, the lowest since fiscal year 2020.
Electronic Arts' Live Services, which is the most profitable segment for net bookings, has been underperforming recently, with a 14% year-over-year decline in the fourth quarter of fiscal year 2024 (FY4Q24).
This is attributed to tough comparisons with the EA Sports FC franchise, which saw a 22% increase in the corresponding quarter of the previous year, boosted by the World Cup, as well as weaker monetization for Apex Legends, which experienced a 54% drop in the same period.
Stifel forecasts a continued decline in Live Services for EA in the first quarter of fiscal year 2025, estimating a 10% year-over-year decrease. This is expected to contribute to negative investor sentiment. However, Stifel anticipates an improvement in the following quarters with Live Services (excluding mobile) projected to decrease by only 2% year-over-year in the second quarter, and then increase by 6% in the third quarter and 11% in the fourth quarter of fiscal year 2025.
The outlook for Electronic Arts' financial performance is based on the assumption that the current trough in Live Services revenue will be followed by a progressive recovery throughout the year. This analysis by Stifel reflects the firm's expectation that despite recent sluggishness in EA's most lucrative segment, the trend will improve, leading to positive growth in the latter half of fiscal year 2025.
In other recent news, Electronic Arts has been the subject of multiple analyst actions.
Oppenheimer increased its price target for Electronic Arts to $170, maintaining an Outperform rating, based on the positive reception of the EA Sports College Football 25 (CFB25) launch. JPMorgan (NYSE:JPM) also raised its price target for Electronic Arts to $155 anticipating the release of College Football 25. The firm's revised model projects bookings of $7.6 billion in FY25, surpassing the $7.5 billion midpoint, and adjusted earnings per share (EPS) of $7.89.
On the other hand, Citi downgraded Electronic Arts from Buy to Neutral, despite increasing the price target to $161 from $148, citing potential risks such as the possible declining performance of "Apex Legends" and competition from upcoming releases.
Jefferies upgraded Electronic Arts to a Buy rating, highlighting the company's dominant position in sports and live services across multiple genres with a price target of $165. Stifel increased its price target for Electronic Arts to $163, maintaining a Buy rating, and anticipating upcoming catalysts that could enhance the company's financial performance.
These recent developments reflect a variety of anticipations from different analyst firms about Electronic Arts' future performance. Amid these adjustments, Electronic Arts reported a weak revenue outlook, a trend also observed in other gaming companies. Despite the varied analyst actions, the overall sentiment towards Electronic Arts appears cautiously optimistic, with several firms maintaining or upgrading their ratings.
InvestingPro Insights
Electronic Arts (NASDAQ:EA) has been the focus of multiple analysts recently, with Stifel enhancing its price target based on projections of a recovery in the company's financial metrics. Adding to this perspective, InvestingPro data provides additional insights into the financial health and market position of EA. With a market capitalization of 38.98 billion USD and a robust gross profit margin of 77.61% over the last twelve months as of Q4 2024, EA demonstrates significant earning power in its operations.
InvestingPro Tips highlight that Electronic Arts holds a perfect Piotroski Score of 9, indicating a strong financial position, and has raised its dividend for four consecutive years, reflecting confidence in its financial sustainability. Moreover, the company's cash flows can sufficiently cover interest payments, which is reassuring for investors concerned about debt levels.
While the company is trading at a high earnings multiple with a P/E ratio of 31.08, the PEG Ratio of 0.49 suggests that EA's stock price may be reasonable relative to its earnings growth. Additionally, the strong return over the last three months, with a 16.29% price total return, indicates a positive momentum that could align with Stifel's anticipation of an upturn in the latter half of fiscal year 2025.
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