In this article, I will run you through my quick analysis for Activision Blizzard (ATVI) as I believe the stock is trading at an attractive valuation and may be poised for a solid upside given its healthy fundamentals. Even with the following information, your further research is still warranted.
ATVI stock has experienced a flat performance over the past 12 months, but declined 5.88% year to date. It is currently trading slightly above its 52-week low of $10.40 at $11.73. At the current valuation, the stock is trading at 12.0x the current fiscal year estimated EPS and 6.1x the LTM EBITDA. I am bullish on ATVI based on the following reasons:
- Taking the growth prospects into consideration, ATVI is trading at a 3-year expected PEG of 0.81x, suggesting a discount to the future growth.
- I have performed a comparable analysis by including ATVI's major competitors Electronic Arts (EA) and Take-Two Interactive Software (TTWO). According to the table below, ATVI is the most profitable firm and able to generate substantial free cash flow relative to its peers. The firm also has no debt compared with an average peer debt level of 26.3%. I believe a valuation premium should be warranted given ATVI's solid portfolio of gaming titles, profitability, and healthy liquidity position. Based on a 20% valuation premium to both the group average P/E and EV/EBITDA multiples, the model yields a fair stock value of $14.92, implying a solid 27% upside potential.
- ATVI has a strong balance sheet. As at Q1 2012, the firm is sitting on $3,476M cash and has no debt. The cash position is approximately 26.8% of the market capitalization. Its current and quick ratios are very healthy at 2.6x and 2.0x, respectively.
- Sell-side analysts are very bullish on the stock. Of the 25 analyst ratings for the company, there are 11 strong buys, 9 buys, and 5 holds. The mean target price is $15.71, indicating a decent 34% upside potential. Stifel Nicolaus initiated research coverage in March with a buy rating for a target price of $16.
- According to below, analysts' estimated EPS for the current and next fiscal years has multiple upward revisions over the past 90 days.
- ATVI has a track record of beating estimates. Over the past 7 consecutive quarters, the firm has consistently beaten both revenue and EPS estimates by substantial surprises (greater than 10%).
- The chart below shows that there has been a technical support level at around $11.60 since November 2011.
- ATVI has a dividend yield of 1.53%.
Comparable Analysis table is created by author, EPS table is sourced from Yahoo Finance, Price Chart is sourced from Bloomberg, and financial data is sourced from company 10-Q, 10-K, press release, Yahoo Finance, YCharts, Wall Street Journal, Thomson One, Bloomberg and Morningstar.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ATVI over the next 72 hours.