On Wednesday, BMO Capital Markets shifted its stance on Ubisoft Entertainment SA (UBI:FP) (OTC: UBSFY (OTC:UBSFY)), raising the video game company's shares rating from Market Perform to Outperform, though the price target was adjusted to €22.00 from the previous €27.00.
The firm cited the stock's current valuation as a compelling reason for the upgrade, pointing out that the shares are trading at approximately 2.7 times the fiscal year 2026 estimated EBITDA, which is significantly lower than the 10-year forward average of 10.5 times.
The firm acknowledged that investors might be overreacting to the underwhelming third-party sales data for Ubisoft's "Star Wars Outlaws." Despite this, BMO Capital Markets sees a valuable opportunity, suggesting that the game could have a longer-tail sales potential that has not yet been fully realized.
A key event that could potentially boost Ubisoft's performance is the anticipated November launch of "Assassin's Creed Shadows." The franchise has historically exceeded internal expectations, and the new game's release could catalyze the company's stock.
While BMO Capital has conservatively lowered its fiscal year 2025 and 2026 earnings estimates for Ubisoft, the firm still finds the shares to be attractively priced. This reassessment reflects a belief in the company's ability to recover and grow, despite the recent reduction in the price target.
The upgrade comes at a time when Ubisoft's valuation is at a near 10-year low, suggesting that the stock may be undervalued. BMO Capital's revised outlook provides a more optimistic view of Ubisoft's future financial performance and market position.
In other recent news, Ubisoft Entertainment SA grapples with revised financial expectations and delayed game releases. Exane BNP Paribas (OTC:BNPQY) downgraded Ubisoft's stock from "Outperform" to "Neutral," setting a new price target at €14.50, a significant drop from the previous €32.00. This decision was influenced by Ubisoft's underperforming AAA titles and free-to-play games.
TD Cowen, noting Ubisoft's first-quarter fiscal year 2025 bookings, maintained a Hold rating but reduced the shares target from EUR27.00 to EUR23.00, following the postponement of two major mobile game releases to fiscal year 2026.
Meanwhile, Citi reaffirmed its Buy rating on Ubisoft, keeping a steady price target of EUR45.00, after Ubisoft's 2024 Forward event unveiled major upcoming releases including "Star Wars Outlaws" and "Assassin’s Creed Shadows.
InvestingPro Insights
Ubisoft Entertainment SA (OTC: UBSFY) presents an interesting case for investors, with real-time data underscoring some of the reasons behind BMO Capital Markets' upgrade. Notably, the company's gross profit margin stands impressively high at 91.13% for the last twelve months as of Q4 2024, indicating efficient management and a strong market position for its products. Additionally, the company's valuation implies a strong free cash flow yield, which is often a good sign for investors looking for companies that can generate cash effectively.
Despite recent price declines, with the stock falling significantly over the last year and the last three months, the market may have overshot on the downside. According to InvestingPro Tips, the stock is in oversold territory, suggesting that the current price levels could provide an entry point for value investors. Furthermore, with analysts predicting that the company will be profitable this year and considering its profitability over the last twelve months, the long-term outlook could be favorable.
For those seeking further insights, InvestingPro offers additional tips on Ubisoft Entertainment SA, which can be found at https://www.investing.com/pro/UBSFY. These tips delve into other key metrics and forecasts that could inform investment decisions. As of now, there are 11 additional InvestingPro Tips available for Ubisoft, providing a comprehensive analysis for potential investors.
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