Should You Buy Electronic Arts Stock At $130?

+31.30%
Upside
116
Market
152
Trefis
EA: Electronic Arts logo
EA
Electronic Arts

Electronic Arts stock (NYSE: EA) reported its Q1 FY23 results last week, with revenue and earnings comfortably above ours and the street estimates. EA stock saw a rise of around 2% in a week, and we believe EA stock has some more room for growth, as discussed below.

Electronic Arts’ revenue of $1.3 billion in Q1 was down 3% y-o-y, and its EPS of $0.47 reflected a 40% y-o-y decline. This compares with our estimates of $1.3 billion and $0.30, respectively. Although the company benefited from its recent acquisitions and growth in its live services offerings, it was a tough comparison to the prior-year quarter, which benefited from more game launches. Given the upbeat results, the company reaffirmed its bookings guidance for the full-year 2022 to be in the range of $7.9 and $8.1 billion, and earnings to fall between $7.05 and $7.15 on a per share and adjusted basis.

Overall, Electronic Arts’ Q2 results were good, with a rise in daily active users and strong growth for its FIFA franchise. This trend is expected to continue going forward, as well. FIFA is the largest game for the company, and with the FIFA World Cup coming up later this year, Electronic Arts will likely see strong demand for its FIFA games over the coming quarters. The company has a robust pipeline with more sports games scheduled to be released over the coming years. It will also benefit from the recent acquisitions of Playdemic, Codemasters, Metalhead Software, and Glu Mobile.

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Given the recently announced results and outlook, we have updated our model and revised our estimates. We expect full-year 2022 bookings to be $8.0 billion, within the company’s provided range, but earnings to be $7.19, marginally higher than its estimates.

We estimate  Electronic Arts’ valuation of $152 per share, reflecting a 15% upside from its current market price near $133. Our valuation is based on a forward P/E ratio of under 21x based on our earnings forecast of $7.19 on a per-share basis for full-year 2022. At its current levels, EA stock is trading under 18x its forward earnings, compared to the last three-year average of 22x, implying more room for growth.

While EA stock looks like it has more room for growth, it is helpful to see how Electronic Arts’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Teradata vs. Crane.

With inflation rising and the Fed raising interest rates, among other factors, Electronic Arts stock has seen only a 1% rise this year. Can it drop from here? See how low Electronic Arts stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Aug 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 EA Return 1% 1% 68%
 S&P 500 Return 0% -13% 85%
 Trefis Multi-Strategy Portfolio 3% -10% 253%

[1] Month-to-date and year-to-date as of 8/8/2022
[2] Cumulative total returns since the end of 2016

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