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Sell-Side Likes The Outlook For Activision Blizzard, Take-Two Interactive

Dave Royse

Activision Blizzard, Inc. (NASDAQ: ATVI) and Take-Two Interactive Software (NASDAQ: TTWO) not only had strong September quarters, but look good heading into next year sell-side analysts said, suggesting company guidance on the near-future may be too conservative.

Analysts universally liked Activision's third quarter and Take-Two's second quarter, and were looking ahead to continued growth.

The Analysts

Morgan Stanley's Brian Nowak kept an Overweight rating and $60 price target on Activision Blizzard.

UBS analyst Eric Sheridan maintained a Buy rating and $56 price target on Activision Blizzard.

Bank of America's Ryan Gee raised the price target on Activision from $62 to $66 and reiterated a Buy rating. He reiterated a Buy on Take-Two but lowered the target price from $144 to $134.

Piper Jaffray's Michael Olson kept an Overweight rating and $62 price target on Activision, and maintained an Overweight rating and $134 target price on Take-Two.

Stifel's Drew Crum remains Buy-rated on Activision, with a $65 price target, and kept a Buy rating on Take-Two with a $144 target price.

Activision Blizzard

After the "clean beat" in the third quarter and clarity also emerging on multi-year earnings growth with several new launches in 2020, next year is looking really good for the "World of Warcraft" and "Call of Duty" company, Nowak said.

"We remain positive on the breadth of optionality, particularly as ATVI leverages its leading IP across platforms," Nowak wrote in a note.

Sheridan also thinks investors should look forward to revenue growth.

"Call options around global mobile titles, eSports drivers and live operations all remain intact looking forward," Sheridan wrote.

"World of Warcraft" and "Call of Duty" are both tracking well and Gee sees a 2020 return to growth. The company's below-consensus fourth-quarter revenue guidance is likely conservative.

View more earnings on TTWO

Olson also said guidance is conservative, and thinks with releases of "World of Warfare Classic," "Call of Duty Mobile" and "Call of Duty Modern Warfare," 2019 will end stronger, and 2020 will see accelerating growth.

Crum said the investment thesis on Activision "continues to focus on improving fundamentals (and growth) returning in '20 and beyond."

Take-Two Interactive

Take-Two's second-quarter results came in ahead of estimates, with EPS beating the Street by 15% on strong sales of "Borderlands 3." Other drivers of the strong September quarter included "Grand Theft Auto" franchise and "NBA 2K."

"We thought this was a solid update for the biz, with contributions across several core franchises and healthy gains for recurrent consumer spending," Crum wrote in a note.

Analysts were impressed with Take-Two's report that recurrent consumer spending rose a healthy 39%, more than expected, paced by "NBA 2K" virtual currency spending and a record quarter for "GTA Online."

But investors may not have gotten everything they wanted to see in the print, Gee said, even though Take-Two has widely outperformed for several quarters.

"Investors likely wanted to see a cleaner print (more upside potential from BL3, stronger NBA 2K growth) and this may add to existing concerns about FY20 EPS growth that has weighed on the stock of late and that may persist until May call," Gee wrote.

Price Action

Take-Two shares were up 2.1% to $119.46 on Friday, while Activision Blizzard was down marginally at $54.46.

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"Call of Duty: Black Ops 4" screenshot courtesy of Activision Blizzard.

Latest Ratings for TTWO

Date Firm Action From To
Nov 2019 Maintains Neutral
Oct 2019 Maintains Buy
Oct 2019 Maintains Overweight

View More Analyst Ratings for TTWO
View the Latest Analyst Ratings

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