On Wednesday, UBS adjusted its outlook on shares of Electronic Arts (NASDAQ:EA), reducing the price target to $143 from $146 while maintaining a Neutral rating on the stock. The adjustment comes in response to Electronic Arts' recently announced restructuring plan and moderated expectations for the company's fiscal fourth quarter performance.
UBS anticipates Electronic Arts' bookings to hit the lower end of management's prior guidance range, projecting an 11% decline in fiscal fourth quarter bookings. This is a downward revision from the previously expected 7% decline and contrasts with the 1% increase observed in the last quarter.
The firm also forecasts a roughly 20% drop in operating income, attributing the downturn to challenging comparisons in soccer game sales, a sparse release schedule, and the timing of content updates.
Looking ahead to the fiscal first quarter, UBS predicts that Electronic Arts will continue to face tough comparisons due to the previous year's launches of Star Wars Survivor and PGA Tour. With no similar titles slated for release, UBS expects bookings to decline by more than 10%, a more pessimistic view than the consensus estimate of a 4% decrease.
Despite these short-term challenges, UBS remains slightly optimistic for fiscal year 2025, forecasting low single-digit bookings growth and mid to high single-digit profit growth.
This outlook is based on the anticipation of improved performance from core franchises, more favorable comparisons, and the launch of the new NCAA game. UBS estimates a 2.7% increase in bookings and a 7.5% rise in operating income for fiscal year 2025, albeit these figures are lower than previous estimates of 3.3% and 9.3% growth, respectively.
InvestingPro Insights
In light of UBS's revised outlook on Electronic Arts (NASDAQ:EA), examining the company through the lens of InvestingPro's real-time data and tips offers additional context for investors. With a market capitalization of $35.0 billion and a P/E ratio of 33.03, EA is recognized for its financial stability, underscored by a perfect Piotroski Score of 9, which indicates top-notch financial health. Moreover, EA's practice of holding more cash than debt and its track record of raising dividends for four consecutive years reflect a robust balance sheet and a commitment to shareholder returns.
InvestingPro data also shows EA's revenue growth over the last twelve months as of Q3 2024 at 3.8%, with a gross profit margin of 76.48%, indicating strong profitability in its operations. However, the company trades at a high P/E ratio relative to near-term earnings growth, with a PEG ratio of 5.06, which suggests that the stock might be overvalued considering its earnings growth rate. Nonetheless, EA's stock is generally known for low price volatility, which may appeal to risk-averse investors.
For those looking to delve deeper into Electronic Arts' financials, InvestingPro offers additional insights, including a fair value estimate of $136.14, which is below the current price but above the UBS target. Investors are encouraged to consider these metrics in the context of UBS's analysis and the company's future prospects. To access the full suite of InvestingPro Tips for Electronic Arts, including insights into cash flow sufficiency and liquidity, visit https://www.investing.com/pro/EA. Moreover, investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more valuable information. With 11 more InvestingPro Tips available, there's a wealth of data to help inform your investment decisions.
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