Update: Bank Of America Downgrades King Digital

Jul.23.14 | About: King Digital (KING)

Summary

This morning BAC downgraded King Digital from buy to neutral.

My opinion on the company languishing until the share lock-up period expires is bolstered by the news, and my long-term thesis remains intact.

I alluded to the threat of a sell-off in late summer, as the share lock-up period nears, in my previous article.

This morning, Bank of America (NYSE:BAC) analysts downgraded King Digital Entertainment (BATS:KING) from a buy rating to neutral. They also reduced their price target slightly on the stock from $23 to $22. The catalyst for the reduction was due to a decline in the popularity rankings of certain games in King's portfolio.

In my original article, released on June 9th, when King was trading in the $17 range, I opined that the company presented a value at that trading level. Further, I cited several potential developments that could provide near-term upside, such as the accretive effects of the release of Diamond Digger Saga. However, I also tempered my article by stating King faced the looming share lock-up period expiration in September and will suffer in the later portion of the summer.

After the run-up to approximately $22 a share, I changed my outlook on King on July 3rd, citing a full valuation and the threat of an abundant supply of shares entering the market soon. Since that time, King has traded down and currently sits at roughly $19.75 per share. I expect shares to decline further, and eventually bottom out sometime in September, once the additional shares enter the market. If King falls to the $17 range once again, I will add it to my portfolio, if nothing material changes, as I believe it presents a value play at that level. Although its popularity of certain games may be declining, I believe in their ability to produce new games.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.