Zynga Inc. (ZNGA) shares traded evenly throughout most of Tuesday's session as analysts weighed in on the company's $1.8 billion cash and stock acquisition of Peak. Jefferies raised its price target from $9 to $11 per share after analyst Alex Giaimo called the deal "transformational" rather than a "tuck-in." He sees a bull case path to $13 for the stock but notes that the risk-to-reward ratio is a bit more balanced given the stock section to the deal.
Barclays analyst Mario Lu raised the firm's price target on Zynga shares from $7.50 to $9.50, reflecting one of the lower increases on the Street. Lu said that the acquisition will increase the company's Forever franchises to eight by the end of fiscal 2020 and could be the "missing ingredient" to expand EBITDA margins.
Zynga acquired Peak for $1.8 billion in half cash and half stock. Peak is known for its two Forever franchises, "Toon Blast" and "Toy Blast," and management believes that the acquisition will add significant value to Zynga's live services and will become an additional driver for margin expansion in the future.
From a technical standpoint, the stock moved sharply higher over the past few sessions following its first quarter financial results and the Peak acquisition. The stock briefly hit fresh highs during Tuesday's session before giving up ground by mid-day. The relative strength index (RSI) moved into overbought territory with a reading of 74.42, but the moving average convergence divergence (MACD) remains bullish.
Traders should watch for consolidation above $9.25 levels, which could become a key support level over the coming sessions. If the stock breaks down, traders could see a move lower toward past reaction highs of $8.50 per share. If the stock breaks out higher, traders could see a retest of the psychologically important $10.00 price point.
The author holds no position in the stock(s) mentioned except through passively managed index funds.