Midway Games: Overvalued and Lags Competitors

Nov.27.06 | About: Midway Games (MWY)

Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:

Play Again, Mr. Redstone? [New York Times]

Summary: According to analysts that follow Midway Games -- the video game software company best known for hits like "Mortal Kombat" and "Gauntlet" -- its stock is overvalued trading at 5x sales and with its ROIC less than its cost of capital. Not to mention, its owner, media mogul Sumner Redstone (his family controls 88% of shares outstanding and owns Viacom) bought up shares last year and subsequently seems to have timed a large share sale to coincide with a multi-year peak at $22.41/share in December. Since then, Midway bottomed at $6.06 in June and now trades at $8.53. CEO David Zucker hopes to leverage Viacom by promoting games on MTV. It remains to be seen whether Midway can turn things around as the next generation of video game consoles just recently launched. The firm has announced its highest sales guidance since 1999 and a return to profitability after two years in the red. Midway-Games-MWY-1yr-chart-11-24-06
Related links: Commentary: Video Game Stocks: Bear Stearns Cautious On GroupGaming Sector Headed for Hot Holiday SeasonGameStop Just Getting Started, Reports Strong Q3Electronic Arts Surprises Street, Scores Big with EA Sports.
Potentially impacted stocks and ETFs: Midway Games (MWY) • Competitors: Electronic Arts (ERTS), Activision (NASDAQ:ATVI), Konami (NYSE:KNM), Take Two (NASDAQ:TTWO), THQ (THQI)

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