Pacific Crest Securities resumed coverage of the interactive entertainment sector with a positive outlook. Fueled by higher digital distribution rates, the sector should generate additional gross margin gains going forward, the analyst stated.
Additionally, the broker believes that companies in the sector should be able to use data they obtain from online users to improve their games and raise their monetization levels.
The analyst recommends investors own the shares of video game makers Electronic Arts $EA , #Activation Blizzard $ATVI and #Take-Two Interactive $TTWO , as he resumed coverage of all three stocks with Overweight ratings.
ELECTRONIC ARTS: Broker says that Electronic Arts’ “high value” games with “predictable” sales volumes should enable its revenue and margins to increase over time. Additionally, he believes that the company is poised to lower its development costs going forward. He placed a $112 price target on the stock.
ACTIVISION: The video game maker’s “tremendous” intellectual property and popular digital games leave it well-positioned to benefit from increased spending on digital, the broker stated. Moreover, the large audiences of its digital games should enable it to continue attracting more users and allow its profits to beat expectations, according to Wingren, who set a $60 price target on the stock.
TAKE-TWO: The success of the company’s Red Dead Redemption 2 game, along with the “sustainability” of its GTA Online and NBA 2K franchises should enable its earnings power to exceed “historical norms,” Wingren wrote. He set a $74 price target on the stock.
WHAT’S NOTABLE: Video game and hardware retailer GameStop $GME announced this morning that it has just received a limited supply of Nintendo’s $NTDOY popular Switch systems, which are “available immediately for customers in-store only and while supplies last.” The shift of physical games to more digital delivery has frequently been cited in the past as a risk for GameStop.