Popular gaming stock Electronic Arts Inc. (EA - Get Rating) recently announced its collaboration with Marvel Entertainment to develop new action-adventure games for consoles and PC. The company expects this collaboration to help produce exceptional experiences for our players.

In addition, the demand for video gaming has been pretty overwhelming. According to Statista, gaming audiences in the United States spent an average of $23.87 on video games per month in 2022, up 19.7% from 2019.

Moreover, Andrew Wilson, EA’s CEO, recently said, “More people than ever before are turning to games as their primary platform for social connection and creativity.”

He added, “With EA’s unrivaled IP, talented teams, and growing player network, we are well-positioned to lead the future of entertainment.”

EA has lost 4.2% over the past month and marginally over the past year to close the last trading session at $125.68. However, it has gained 2.7% over the past nine months.

Here is what could shape EA’s performance in the near term:

Solid Financials

EA’s net revenue came in at $1.90 billion for the fiscal 2023 second quarter that ended September 30, 2022, up 4.3% year-over-year. Its gross profit came in at $1.44 billion, up 8.3% year-over-year.

Moreover, its net income came in at $299 million, up marginally year-over-year, while its EPS came in at $1.07, up 4.9% year-over-year.

Favorable Analyst Expectations

Analysts expect EA’s revenue to increase 3.1% year-over-year to $7.75 billion in 2023 and 6.6% year-over-year to $8.26 billion in 2024. Its EPS is expected to increase marginally year-over-year to $7.14 in 2023 and 9.9% year-over-year to $7.85 in 2024.

Moreover, its EPS is expected to rise 10.7% per annum for the next five years. Also, it surpassed EPS estimates in three of four trailing quarters.

Robust Profitability

EA’s trailing-12-month gross profit margin of 75.25% is 49.6% higher than the industry average of 50.32%. Its trailing-12-month EBITDA and net income margins of 25.83% and 12.37% are 36.3% and 174.4% higher than the industry averages of 18.95% and 4.51%, respectively.

Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of 11.51%, 8.77%, and 6.89% are compared with the industry averages of 6.14%, 4.11%, and 2.23%, respectively.

POWR Ratings Reflect Promising Outlook

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

EA has a B grade for Growth and Quality, consistent with its solid financials in the latest reported quarter and higher-than-industry profitability margins, respectively.

EA is ranked first in the 21-stock Entertainment – Toys & Video Games industry.

Click here for the additional POWR Ratings for EA (Value, Momentum, Stability, Sentiment).

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

Bottom Line

EA’s growth outlook is significantly strong. Also, Wall Street analysts expect the stock to hit $147.40 in the near term, indicating a potential upside of 17.3%. Given the industry tailwinds and EA’s robust fundamentals, I think it could be a top buy 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 peers, SciPlay Corporation (SCPL - Get Rating), which has an overall A (Strong Buy) rating, and DoubleDown Interactive Co., Ltd. (DDI - Get Rating), Spin Master Corp. (SNMSF - Get Rating), and Gravity Co., Ltd. (GRVY - Get Rating), which have an overall B (Buy) rating.

EA shares were trading at $125.63 per share on Wednesday morning, down $0.05 (-0.04%). Year-to-date, EA has declined -4.21%, versus a -13.92% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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