Electronic Arts Inc. (NASDAQ:EA) is in an interesting spot ahead of its fiscal third-quarter earnings report next week. EA stock has rallied since touching a six-month low back in early December, gaining about 15%. In fact, Electronic Arts stock sits just 6% below an all-time high reached back in late August. But investors — and particularly analysts — actually seem relatively concerned heading into next Tuesday afternoon’s report.

In fact, there’s an interesting bull/bear battle brewing, particularly on Wall Street. The argument centers primarily around the recent launch of Battlefront II.

Reviews haven’t been particularly strong. More notably, many players were extremely upset about in-game costs, as InvestorPlace contributor Luke Lango detailed back in November.

With Battlefront positioned to be the key growth driver in Q3 and Q4, that player anger could turn into weaker sales and profits. EA stock was already hit by disappointing guidance coming out of Q2, so a second disappointing earnings report could reverse the recent rally and send EA back toward $100.

Bearish investors see Battlefront II as a risk, particularly with a reasonably high valuation (over 20x FY19 EPS, plus the company’s ~$10 per share in net cash). EA bulls see the brouhaha as a temporary concern, and once it’s forgotten Electronic Arts stock will reach new highs.

What’s interesting at the moment is that Wall Street has taken both sides.

Analysts Split on EA Stock

Several analysts have weighed in on the Battlefront concerns — with notably different opinions and price targets:

• Piper Jaffray argued the market would look past the microtransaction issues, to a new Battlefield shooter, plus the benefit to the FIFA line from the coming World Cup. Price target raised to $142, representing 20% upside.
• Morgan Stanley (NYSE:MS) took the opposite tack. The sales forecast for Battlefront II was cut to 10 million units from 13 million, and so were Q3 EPS estimates. The new price target of $120 suggests less than 3% upside over the next year.
• Cowen too takes the bearish line. It estimates 11 million units sold, and sees double-digit downside in Electronic Arts stock, lowering its target price to $104.
• Wedbush cites the “loyalty of the Star Wars fan base” as keeping sales intact, and sees an “overdone sell-off” in EA stock.
• BMO makes a similarly bullish argument, valuing EA at $130.

There’s definitely a good news/bad news scenario surrounding EA, as Ian Bezek detailed earlier this month. This sets up an important, and closely watched, Q3 report.

Options pricing suggests the market is pricing in roughly a 6% move through the February expiration — which truthfully seems a bit low. An earnings beat and good news in terms of Battlefront II easily could send EA to an all-time high, a 7%+ gain.

Similarly, if EA bears are vindicated, a return toward $100 — 10%+ downside — wouldn’t be a huge surprise.

One side likely is going to look very wrong coming out of Q3 — and I expect EA stock to respond in kind.

On the Sidelines

Back in early December, I took the bulls’ side, arguing that EA stock was simply too cheap. Ahead of a high-risk quarter, however, and after a ~15% gain, I’m not quite as convinced that’s the case.

Take Two Interactive Software Inc (NASDAQ:TTWO) still looks like the best play on gaming. But also EA’s rival Activision Blizzard, Inc. (NASDAQ:ATVI) has broken out to new all-time highs. That company for years has kept its guidance extremely conservative, and is likely to show a ‘beat’ of some kind in the holiday season with its Q4 report in early February.

EA simply looks like a case where the edge on either side isn’t particularly compelling.

That could change quickly after earnings, however. A post-earnings sell-off could get the stock back below $110, where I see it as highly attractive. Even a modest gain, if that gain results from earnings that show the Battlefront II controversy is being resolved, could make EA more compelling.

Right now, however, EA stock is a battleground stock. And in those types of stocks — think Tesla Inc (NASDAQ:TSLA) or Netflix, Inc. (NASDAQ:NFLX) — it’s tough to take a side without a huge amount of conviction. That conviction is tough to find at the moment — and ahead of a key report, it’s wisest to step to the sidelines.

As of this writing, Vince Martin has no positions in any securities mentioned.