Up 13% in 2019, Activision Blizzard (NASDAQ:ATVI) stock probably has investors wondering if it has enough momentum to get to $60 by the end of the year or if it will drop back into the $40s, where it spent most of 2019.
Activision Blizzard Stock Is Worth $60
According to analysts, ATVI is more of a $60 stock than a $45 one.
Of the 33 analysts covering Activision Blizzard stock, 22 rate it a “buy,” another three have an “overweight” rating on it, and eight rate it a “hold.” The highest price target on ATVI stock is $68, the lowest is $41, and the average is $56.75.
In early September, analysts started to warm up to ATVI, and that seems to have helped push Activision Blizzard stock higher.
Last month, Bank of Montreal analyst Gerrick Johnson upped his rating on ATVI to “outperform” from “market perform.” More importantly, he gave Activision Blizzard stock a $60 price target.
“[I have] stronger conviction that the company’s restructuring efforts and investments in core games like Call of Duty and World of Warcraft will generate an improvement in financial performance,” Johnson stated in a September note to his clients, according to CNBC.
One of the things I have felt would help Activision Blizzard down the line is its tendency to provide conservative guidance.
By managing expectations, ATVI increases the chances that any uptick in its earnings will light a fire under ATVI stock. And while I don’t think ATVI is ready to run to $100, I do feel that it has enough irons in the fire to keep moving higher for the remainder of 2019.
Moreover, Stephens analyst Jeff Cohen raised his price target on Activison Blizzard stock on Sept. 5 to $65 while upgrading the shares from “equal-weight” to “overweight.” “They did a good job of framing 2019 as a transition year and sort of the bottom in terms of the content cycle. We’re expecting a lot more coming in 2020,” the analyst wrote.
So, while it’s hard to know if ATVI has enough gas in the tank, it’s hard to imagine it falling back into the mid- to low-$40s unless its earnings report. due to be released on Nov. 14, is terrible.
ATVI Is a $45 Stock
InvestorPlace contributor Vince Martin warned readers on Sept. 18 to beware the rally of Activision stock. Vince’s premise was a simple one: It needs a new hit because it can’t rely on World of Warcraft forever.
Furthermore, he believes that, excluding three special situations — a share repurchase, a gain from tax reform, and its successful acquisition of King Digital — its earnings growth leaves a lot to be desired.
While I understand Vince’s rationale, one could also argue that the share repurchase and the King Digital acquisition were smart capital allocation decisions by CEO Bobby Kotick.
In addition, I believe Kotick’s decision to cut staff in February and reinvest those funds in the company will ultimately prove to be fruitful.
So at this point, I agree with Vince Martin that ATVI has a lot to prove in 2020 and beyond. However, I don’t agree that ATVI is really a $45 stock masquerading as a $52 stock.
Between its launch of the mobile edition of Call of Duty and the advent of its esports league, the company appears to be doing enough to keep its stock in the $50s.
The Bottom Line on Activision Blizzard Stock
The video-game business runs hot and cold. As a result, handicapping stocks in the sector is a very tricky proposition. But I definitely wouldn’t short video-game stocks.
At the end of the day, the fact that ATVI generates strong free cash flow even when the economy is reeling ( in 2008, the year of the recession, ATVI generated $333 million of free cash flow from a loss of $107 million) makes Activision Blizzard stock a good name to hold for the long haul.
ATVI is a $60 stock.
The time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
