By Sam Boughedda
Activision Blizzard (NASDAQ:ATVI) was upgraded to Outperform from Market Perform by Raymond James analysts, who maintained a $95 per share price target on the stock.
They told investors in a research memo that solid core trends move the stock's risk/reward on deal approval to the positive.
They went on to explain that following last year's announcement that Microsoft (NASDAQ:MSFT) had agreed to acquire Activision Blizzard for $95 per share in an all-cash transaction, its stock has traded at a persistent discount to the deal price driven by concerns around regulatory bodies blocking the deal.
"In our view, a sizable discount was more justified at the time given the potential for a sharp drop in ATVI shares should the deal fall through, as recent releases had been poor, the pipeline outlook was uncertain, and the company was still dealing with fallout from the harassment scandal at Blizzard. In the nine months since, however, trends in the core business have improved significantly, making a price drop on a deal break less precipitous for a standalone ATVI share price. As we still believe the deal will close as proposed, we see risk/reward as having shifted solidly to the positive," wrote the analysts.
In addition, given improving trends across the portfolio since the January deal announcement, Raymond James sees a smaller potential drop in ATVI standalone should the deal fall through.
"Even assuming a multiple nearly two standard deviations below five-year averages (both absolute, and relative to the S&P 500) on our updated estimates for $4.00 in 2023 EPS, we arrive at a valuation in the low-mid $60s with upside to $95 if the deal closes as proposed vs. yesterday's close of $71.66," the analysts confirmed.