It’s hard to believe that Electronic Arts (NASDAQ:EA) was trading for less than a dollar when I was in high school (yes, I’m an old man) and as low as $12 and change in 2012. Today, the company is synonymous with cutting-edge gaming and analyst consensus on Electronic Arts is optimistic, but should investors follow the analyst community’s lead?
I don’t make a habit of blindly following analyst recommendations, but in the case of Electronic Arts stock I would tend to concur with their bullish sentiment. Sometimes, it seems, the analysts actually get it right. This, I believe, is one of those occasions.
EA Stock Is a “Market Darling”
I’m not suggesting that you should allow positive market sentiment to sway your investing decisions, but it can’t be denied that Electronic Arts stock is feeling the love (among analysts, at least) in 2019. Perhaps the most prominent seal of approval was recently bestowed by Piper Jaffray, which published a healthy $122 price objective in EA stock and maintained their buy rating.
A number of other high-profile analysts have expressed their optimism for the company, including:
UBS Group, which initiated a buy rating on Electronic Arts stock and increased their price target to $120 from $115; BMO Capital Markets, which raised its price target on EA shares from $116 to $130 while reiterating their outperform rating; Credit Suisse, which raised its price objective to $115 from $110 and set an outperform rating for the company; and Oppenheimer, which also published an outperform rating for EA stock while increasing its price objective substantially to $110 from just $88.
Meanwhile, a number of institutional investors have raised their stakes in Electronic Arts stock; Icon Wealth Partners, Valeo Financial Advisors, North Star Investment Management Corp., Ropes Wealth Advisors, and Berman Capital Advisors are just a handful of the corporate holders of EA shares who have increased their positions.
Indeed, hedge funds and other institutional investors currently account for 94.13% of EA stock ownership.
Plenty of Accolades, but Are They Justified?
Hedge-fund ownership is indubitably a good sign. To be frank, I’d rather swim with the whales than with the retail minnows any day. Praise from analysts is also a nice benefit, but smart investors don’t just want to know what they’re buying; they want to know why analysts are so optimistic about EA stock and the gaming sector in general.
Michael Olson, an analyst from research firm Piper Jaffray, has a succinct answer to this query:
We see a less crowded holiday video game title slate vs. 2018. There are actually more titles launching in holiday 2019, but fewer large titles, suggesting gamer wallet share will be more concentrated.
Olsen then specified Electronic Arts as a likely beneficiary of this market concentration. He also pointed out that the company plans to release the latest installment of a highly establish franchise, Star Wars Jedi: Fallen Order, on the 15th of November.
This impact of this upcoming video-game release must not be underestimated. Piper Jaffray conducted a poll of more than 500 video-gamers and asked them which games are “top-of-mind” as the 2019 holiday season approaches, and Star Wars Jedi: Fallen Order came in second place. (Call of Duty: Modern Warfare came in first place, in case you’re wondering.)
I’m old enough to remember when Star Wars was played for the first time in movie theaters. If I know one thing for certain, it’s that anything bearing the Star Wars logo is bound to be a bestseller. Just for that reason alone, whether you’re personally into Star Wars or not, I firmly believe that a bet against Electronic Arts stock is a form of self-destruction.
The Takeaway on Electronic Arts Stock
I’m not interested in watching you harm yourself, so I’m going to take sides with with Piper Jaffray, Credit Suisse, and Luke Skywalker: let The Force be with you, and power up your portfolio with Electronic Arts shares.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.