Activision Blizzard Inc.’s stock price has been swept up in the speculation around whether Microsoft Corp. will gain regulatory clearance for its $69 billion deal for the videogame publisher, but Wells Fargo analyst Brian Fitzgerald thinks the stock looks attractive regardless of whether the merger happens.
Fitzgerald upgraded Activision’s
ATVI,
stock to overweight from equal weight Monday on the heels of a Politico report from last week that indicated the U.S. Federal Trade Commission was likely to file an antitrust suit to block the deal with Microsoft
MSFT,
“Though the antitrust landscape remains uncertain, we believe ATVI’s current price is neither reflective of its prospects as a standalone videogame publisher nor of MSFT’s outstanding bid of $95 [per] share,” Fitzgerald wrote in his note to clients.
He commented that Activision shares look undervalued as the market fails to appropriately “consider the impact of a $3 [billion] breakup fee,” underappreciates Activision’s standalone potential and possibly miscalculates the likelihood that the deal will actually go through.
“We are optimistic about ATVI’s standalone prospects given a record-breaking “Call of Duty” launch ($1 [billion] in sell-through within the first 10 days), strong engagement in “Overwatch 2,” and continued strength in Mobile (despite bearish commentary from other major mobile game publishers),” Fitzgerald wrote.
He also noted that Activision has a “broad portfolio of wholly owned [intellectual property],” strong traction with PC gamers and compelling opportunity brought on by its mobile investments.
He kept his $95 price target on Activision’s stock, which is up 1.2% in Monday’s premarket action. That $95 target is the same as Microsoft’s buyout price.
Truist Securities analyst Matthew Thornton also turned bullish on Activision’s stock Monday morning, writing of a “favorable risk-reward” balance in the shares.
The company “should have a big 2023,” Thornton wrote, citing, among other things, the health of “Call of Duty,” “World of Warcraft” and Blizzard’s mobile business.
He further commented that Activision “has an overcapitalized balance
sheet.” Thornton estimates that the company will have more than $10 billion in net cash by the end of 2023, or more than $12 billion to $13 billion when including breakup fees. The company could conduct a “significant buyback,” he said.
Thornton upgraded the stock to buy from hold, adding that the company has the strongest slate of near-term releases among a basket of videogame publishers.