Anyone who enjoys a stock chart that looks like a ECG from a coma patient would be hard pressed to find one more flat lined than the chart of Activision (ATVI) over the last two years (see chart). With the exception of a brief spike in late 2011, the stock has spent 95% of the last two years trading between $10.50 and $12.50 a share. Although the company is one of the best run major gaming concerns, it has not been able to offset the double digit declines in PC gaming over the last few years. However, the company reported a stellar quarter today that surprised analysts and might turn out to be the catalyst to break it out of its long term trading range.
Positives from today's earnings report:
- The company reported earnings of 78 cents a share, an increase of over 25% Y/Y and easily better than the consensus estimates of 69 cents a share.
- Revenues came in at $2.59b, almost an 8% rise Y/Y and above previous company guidance of $2.41B and consensus estimates calling for sales of $2.44B
- Online revenues increased over 20% Y/Y.
- Operating margin increased 760 basis points Y/Y.
- The company said it may add substantially to its stock buyback program in 2013.
Activision Blizzard publishes online, personal computer, console, handheld, and mobile interactive entertainment worldwide.
Four additional reasons ATVI still has upside at $13 a share:
- Stern Agee and Macquarie Capital upgraded the shares before the bell on the back of the results. Look for more upgrades from other analyst firms next week.
- In addition to its "Call of Duty" franchise, the company appears to have a huge new hit with the third installment of "Skylanders."
- The company has over $3B in net cash on its balance sheet (better than 20% of its current market capitalization. It also pays a dividend of 1.5%.
- This is the 13th straight quarter the company has beat earnings estimates. The stock trades at less than 10x forward earnings, subtracting net cash.
Disclosure: I am long ATVI.