Activision Blizzard: Strong Buy Rating

Jun. 18, 2020 6:31 PM ETActivision Blizzard, Inc. (ATVI)24 Comments
Alberto Wallis profile picture
Alberto Wallis
974 Followers

Summary

  • Guidance might be too conservative.
  • Call of Duty: Warzone had a strong launch, with over 60 million users in the first two months.
  • Upcoming games and new console cycle can accelerate growth.
  • Looking for more stock ideas like this one? Get them exclusively at Nail Tech Earnings. Get started today »

Co-Written with Elazar Advisors, LLC.

Activision Blizzard (NASDAQ:NASDAQ:ATVI) is one of our Strong Buy Ratings. Our earnings estimates are way above the Street which drives our price target. Gaming sales have jumped since the start of the pandemic, and new games and console releases can help drive the stock significantly higher. Stay-at-home stocks, like Activision Blizzard, can provide investors upside with potentially less risk compared to other stocks.

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We gave ATVI a strong buy rating on March 26th, 2020, with a price target of $87.5. Since then, the stock is up nicely. But we think there’s more to go. Our new target is $110.

Back in March we told subscribers, “The stock's down but there appears multiple near-term and end-of-year drivers to see the stock higher.”

The company appeared to be conservative when they gave guidance on their Q1 report.

We use the 2-year growth rate of revenues as our key measure to identify fundamental trends. The 2-year shows us an underlying trend that smoothes out one-timers.

Guidance implied that the 2-year revenue growth rate for Q2 will be 25.9% which was a jump from the prior trend. But the guidance also implies a slowdown later in the year to a two-year rate of zero percent which we think was too conservative.

The 2-year growth rates for the last three quarters were:

Q3 2019

Q4 2019

Q1 2020

-35.5%

2.9%

11.9%

Their guide for Q2 accelerates the two year growth rate to 25.9%. The guidance is flat for the back half, but we think the numbers, if anything, show an accelerating trend.

Even the CEO admitted on the earnings call that guidance was conservative. Here’s what he said on the earnings call:

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This article was written by

Alberto Wallis profile picture
974 Followers
Financial Analyst at Fincredible. I'm focused on finding quality growth stocks with significant potential for outperformance. I look for companies with sound business models and economic advantages that can deliver strong results over the long term. I studied Economics at the Universidad Metropolitana in Venezuela, and I'm currently pursuing a Master's Degree in Finance com IESA Business School.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless. All model portfolio trades are hypothetical to show direction, conviction and timing. Performance excludes all relevant transaction costs. Opinions given are at this moment and can change rapidly after this is published. Elazar and its employees do not take individual stock positions to avoid front running and other potential customer related issues.

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