Electronic Arts Inc. (EA) is a developer and distributor of games, content, and services for game consoles, PCs, mobile phones, and tablets. The company develops games and services across various genres and licenses its games to third parties to distribute and host.

This month, an independent team of veteran developers, Ascendant Studios, announced its partnership with EA for releasing its debut title, “Immortals of Aveum,” a first-person magic shooter game.

Moreover, in October, the company announced its long-term collaboration with Marvel Entertainment to develop at least three new action-adventure games for consoles and PC. The first title in development is a single-player, third-person, action-adventure game.

For the fiscal third quarter (ending December 2022), the company expects net revenue of approximately $1.83 billion to $1.93 billion. EA estimates a net income between $120 million and $164 million and an EPS between $0.43 and $0.59 for the quarter.

The stock has declined marginally over the past year to close its last trading session at $124.71. Eight of the 11 Wall Street analysts rating the stock have rated it a Buy. The 12-month median price target of $147.40 indicates an 18.2% potential upside. The price targets range from a low of $126 to a high of $165.

Here are the factors that could influence EA’s performance in the near term:

Favorable Analyst Estimates

The consensus EPS estimate of $2.22 for the quarter ending March 2023 indicates a 52.1% year-over-year increase. Likewise, the consensus revenue estimate for the same period of $2.22 billion reflects a rise of 26.6% from the prior-year period.

Analysts expect EA’s revenue and EPS for the current year (fiscal 2023) to be $7.75 billion and $7.14, indicating 3.1% and 1.7% year-over-year improvements, respectively. Its EPS is expected to increase by 10.7% per annum over the next five years.

Impressive Profitability

EA’s trailing-12-month EBIT margin, net income margin, and levered FCF margin of 19.33%, 12.37%, and 19.70% are 109%, 174.4%, and 146.4% higher than the industry averages of 9.25%, 4.51%, and 8%, respectively.

Its trailing-12-month ROCE, ROTC, and ROTA of 11.51%, 8.77%, and 6.89% are 86.3%, 112.4%, and 199.6% higher than their respective industry averages of 6.18%, 4.13%, and 2.30%.

Sound Financials

For the fiscal second quarter ended September 30, EA’s net revenue increased 4.3% year-over-year to $1.90 billion. Gross profit rose 8.3% from the prior-year quarter to $1.44 billion. Net income and EPS grew 1.7% and 4.9% from the prior-year period to $299 million and $1.07, respectively.

POWR Ratings Reflect Promising Prospects

EA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. EA has a B grade for Growth, in sync with optimistic analyst estimates.

The stock has a B grade for Sentiment and Quality, consistent with favorable analyst sentiment and higher-than-industry profitability ratios.

In the 21-stock Entertainment – Toys & Video Games industry, the stock is ranked #1.

Click here to see the additional POWR Ratings for EA (Value, Momentum, and Stability).

View all the top stocks in the Entertainment – Toys & Video Games industry here.

Bottom Line

EA’s gaming partnerships might add to its revenue stream in the future. Moreover, the company’s wide profitability scenario looks promising. Most Wall Street analysts deem the stock a Buy. So, it might be a solid addition to your investment portfolio now.

How Does Electronic Arts Inc. (EA) Stack up Against Its Peers?

While EA has an overall POWR Rating of A, one might consider looking at its industry peer, SciPlay Corporation (SCPL), which also has an overall A (Strong Buy) rating.

EA shares were unchanged in premarket trading Monday. Year-to-date, EA has declined -4.92%, versus a -16.24% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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