Bull of the Day: Electronic Arts (EA) - Bull of the Day

By Zacks | May 19, 2014 AAA

The video game industry is an extremely competitive one and thanks to a rapidly changing marketplace—with the advent of more social games as well as tablet/phone platforms—many companies have been struggling to adapt. However, not all of the ‘traditional’ video game powers have struggled, as Electronic Arts (EA) has been soaring and it still remains positioned for more gains in the months ahead too.

EA in Focus

Electronic Arts is one of the most famous developers and publishers of video game software and content, responsible for a variety of digital games under a number of categories. Arguably, the company is best known for having a hand in Madden NFL, The Sims, and Need for Speed franchises, though it has several other titles in a number of segments as well.

The stock has been an all-star performer over the past two years, as EA has appreciated by nearly 150% in the time frame. Plus, the stock has zoomed higher by over 50% just this year alone, making a pretty penny for those who have stayed in this growth story.

Yet with such amazing returns, investors have to be skeptical about a continuation of this trend. But if you look to recent earnings estimate revisions there is plenty of hope that EA can continue on this incredible streak for a bit longer.

Recent History

 First off, it is important to note some of the recent performances at earnings season for EA. The company sees great volatility on a quarter-to-quarter basis for its earnings, but it has seen strong beats over the last four quarters.

1400519526_scaled_425.jpg

The firm thoroughly crushed its most recent report, as it was expected to have just three cents in EPS for the quarter, but it posted 35 cents a share instead. EA also gave some pretty solid guidance too, and with a number of strong titles due out this quarter, analysts have been raising their estimates for the stock as of late.

Estimate Revisions

Not a single analyst estimate has been revised lower in the past two months, while several have moved higher for both the current year and next year time frames. Now, analysts are expecting solid growth rates of about 27% for the current year, and 14.4% for next year.

These growth rates that analysts are predicting are pretty big jumps from where analysts were estimating just a month ago. The consensus estimate has actually moved from $1.20/share for the current year to $1.55/share today, while investors have witnessed a similar trend for the next year time frame as well.

Clearly, given the company’s strong history at earnings season, fresh titles coming out and analyst optimism, there is plenty to still like about EA in the near term. This is why we are currently have a Zacks Rank #1 (Strong Buy) on this security and are looking for more outperformance from this stock in the months ahead.

Bottom Line

Obviously EA has had a great run but there are a number of reasons to believe that the stock has more room to run. After all, even with its surge, the forward PE is still just over 22 so its valuation hasn’t gotten out of control by any means.

Plus, EA’s industry rank is actually in the top 20% so there is plenty to like from that perspective too. So while it might seem counterintuitive to jump in on this stock after such a big surge, the recent revisions and strong position of this market leader suggest that it isn’t game over for this solid performer just yet.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

comments powered by Disqus
Related Analysis
  1. In the Thick of Earnings Season - Ahead of Wall Street
    Stock Analysis

    In the Thick of Earnings Season - Ahead of Wall Street

  2. Bull of the Day: Amira Nature Foods (ANFI)  - Bull of the Day
    Stock Analysis

    Bull of the Day: Amira Nature Foods (ANFI) - Bull of the Day

  3. Bear of the Day: Avon (AVP) - Bear of the Day
    Stock Analysis

    Bear of the Day: Avon (AVP) - Bear of the Day

  4. 5 Of The Best Interviews From Benzinga's #PreMarket Prep
    Stock Analysis

    5 Of The Best Interviews From Benzinga's #PreMarket Prep

  5. Caterpillar (CAT) Earnings Boost Morning Market - Ahead of Wall Street
    Stock Analysis

    Caterpillar (CAT) Earnings Boost Morning Market - Ahead of Wall Street

Trading Center