Electronic Arts (ERTS) shares were flying Friday, as analysts expressed enthusiasm for Thursday’s announcement of plans to acquire the holding company for video game companies BioWare and Pandemic from Elevation Partners for $855 million in cash, stock and other considerations. In particular, they are keen on the company expanding its position in role playing, adventure and action games, areas where it has had a relatively small market share.
Also helping the stock: the company told analysts that it will beat its previous guidance for the fiscal second quarter ended September. The company did not provide detail, but the Street has responded with higher estimates.
Todd Mitchell, an analyst with Kaufman Bros., now sees Q2 revenue of $927 million, up from $885 million, and non-GAAP EPS of 23 cents, up from 18 cents. As for the deal, he says it is “a good deal strategically,” but that it “wasn’t cheap,” and won’t be accretive for two years. Still, he raised his price target to $61, from $58 for this year, and set a 2008 target of $70.
Brent Thill, an analyst with Citigroup, says the acquisition is “a great deal,” which should improve peak-year margins by boosting its portfolio of games where it controls the IP. He contends the deal “likely pays for itself over the next three years.”
ERTS 1-yr chart: