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Bank of America’s Michael Savner yesterday morning cut his rating on THQ (THQI) to Neutral from Buy, in what is largely a valuation call. He did not change estimates or his $36 target.

Savner offered three reasons for the rating change:

  • FY ‘08 guidance “is not a lay up.” THQ has said 40% of revenue will come from games where the company owns the IP (where the margins are higher) on 14% total top line growth. But he says the comparison will be tough, given big FY ‘07 sales for the games Cars (7 million units), WWE Smackdown ‘07 (4 million units) and Saints Row (1.5 million units.)
  • THQ “must prove its efforts on the Wii platform are paying off.” He notes that the company has just 3 of top 25 Nintendo (OTCPK:NTDOY) Wii titles.
  • At current price, “risk/reward is biased to the downside.” He notes that THQI is up 33% since early November.
  • THQ yesterday was down $1.24 at $34.03.

    THQI 1-yr chart:
    thqi chart 2604

    Source: THQ: Three Reasons For Caution