Electronic Arts Downgraded on Lower Growth and Margin Compression

© Reuters.

By Sam Boughedda

An MKM Partners analyst downgraded shares of Electronic Arts (NASDAQ:) to Neutral from Buy, lowering the price target to $131 from $149 in a note Wednesday.

He said they are reducing the rating based on the lowered growth outlook for FY24 and the likelihood of further margin compression.

“Although the depth of EA’s development pipeline remains sizable, we believe a meaningful acceleration in releases will not occur as previously anticipated in FY24, but rather FY25,” wrote the analyst.

“In addition, we now expect to see operating margin further contract in FY24. As a result, we are now below consensus for bookings and EPS in FY24. Combining these variables with a lack of near-term catalysts, we no longer see sufficient upside in the shares to justify a Buy rating,” he added.

MKM now has a fair value estimate of $131 per share, down from its previous $149 price target.

“EA as an acquisition candidate does make a lot of strategic sense but, in our view, the pool of acquirers is a bit limited right now, and we do not believe anything is imminent,” the analyst concluded.

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