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Activision Analysts Don’t Need Microsoft Deal to Be Bullish

(Bloomberg) -- Activision Blizzard Inc. is gaining fans on Wall Street as a flurry of analysts raise their recommendations on the stock even as Microsoft Corp.’s planned acquisition looks increasingly dicey.

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At least six firms have boosted their ratings in November, including three on Monday: Wells Fargo, Truist and Morgan Stanley. Raymond James, MKM Partners and Baird all raised their view earlier this month. Currently, 76% of analysts recommend buying the stock, compared with 57% at the start of the month, according to data compiled by Bloomberg.

The growing optimism about Activision comes despite questions over whether Microsoft’s deal will close. The acquisition faces an in-depth European Union probe and scrutiny from US regulators.

Read more: Microsoft’s Activision Deal Hangs on Long-Shot FTC Accord

“The market is undervaluing ATVI relative to both outcomes,” wrote Wells Fargo analyst Brian Fitzgerald, referring to whether Microsoft’s $69 billion deal will close. Truist analysts led by Matthew Thornton said that the stock has an attractive risk profile, adding that Activision should have a “big” 2023, given the health of its Call of Duty and World of Warcraft franchises.

The Bloomberg consensus rating on the stock -- a ratio of its buy, hold and sell ratings -- has jumped to 4.52 out of five, its highest since January, and up from an April low of 3.94. This has made Activision nearly as well liked among Wall Street analysts as Take-Two Interactive Software Inc., which boasts a consensus rating of 4.57. Additionally, Electronic Arts Inc. has a consensus rating of 4.29.

Shares of Activision rose 1.6% to $74.61 on Monday, more than 20% below Microsoft’s offer to buy it for $95 per share.

Since the takeover was announced in January, the gap between Activision’s trading price and Microsoft’s all-cash bid has been widening, driven by mounting antitrust concerns, as well as its sheer transaction size and long closing process.

The deal’s so-called merger arbitrage spread widened last week after Politico reported that the FTC is likely to file an antitrust lawsuit to block the sale. The market was pricing in roughly 40% odds of the deal successfully closing, Cowen’s merger arbitrage specialist Aaron Glick said on Friday.

--With assistance from Yiqin Shen.

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