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Electronic Arts (EA - Free Report) is a Zacks Rank #5 (Strong Sell) that develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. EA distributes its gaming content and services through multiple distribution channels as well as directly to consumers (online and wirelessly) through its online portal.
While most tech stocks sold off over the last year, EA held up well and traded mostly sideways. However, a recent earnings report took the stock to 52-week lows. Estimates are falling and investors are getting nervous that the stocks momentum might be turning the wrong way.
About the Company
EA is headquartered in Redwood City, CA.The company was founded in 1982 and employs about 13,000. Some popular EA games include Battlefield, The Sims, Apex Legends, Need for Speed, and license games from others, including FIFA, Madden NFL, UFC, and Star Wars brands.
The company is valued at $31 billion and has a Forward PE of 19. EA holds Zacks Style Scores of “B” in Growth, but “F” in Value and “F” in Momentum. The stock pays a small dividend of 0.7%.
Q3 Earnings
Electronic Arts posted earnings in late January, disappointing investors with an 11% EPS miss. Revenues missed expectations and the company cut its FY22 outlook.
EA also cut Q4 GAAP EPS to a range of $0.05-0.20 v the expected $2.23. Additionally, they cut their FY22 GAAP EPS and their FY22 net bookings.
Management blamed the results on the current macro environment and said they will focus on building for the long-term.
Investors clearly didn’t like the quarter and the stock fell almost 10% the next day. Since then, the stock has drifted lower, along with earnings estimates.
Estimates
Since earnings, the stock has seen analyst estimates drop across most time frames.
Over the last 60 days, the current quarter has been lowered by 40%, going from $2.23 to $1.32. While next quarter estimates are ticking slightly higher, they continue to fall over the long-term. Over the last 60 days, next year’s earnings estimates have fallen from $7.69 to $6.51, or 15%.
Analysts have lowered price targets for the stock as well. JPMorgan took the stock down from $141 to $125. UBS cut to $140 from $155. And Wells Fargo lowered its target to $120 from $150.
Technical Take
The stock held up well for most of 2022 as many stocks were being sold aggressively. We saw a sideways trading range from $130 to $150 until the second half of the year when that range dropped to $115-135.
But with the stock hitting 52-week lows, it looks like another trading range will develop, possibly in the $100-120 range.
The upside seems very limited, with the 200-day MA being major resistance at $124. Zooming the chart out, a break of the $105 level could bring some technical selling down to the 85-$90 area. This range was a big consolidation area in 2019 and should offer support.
Summary
EA was giving investors a nice place to hide in 2022. However, the stock is looking very weak after the latest earnings report. Investors should be cautious as technical selling could bring the stock under $100 rather quickly.
For those interested in the sector, a better option might be Take Two Interactive (TTWO - Free Report) . While the stock is a Zacks Rank #4 (Sell), it is coming off a 6% EPS surprise and trading near 2023 highs.
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Bear of the Day: Electronic Arts (EA)
Electronic Arts (EA - Free Report) is a Zacks Rank #5 (Strong Sell) that develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. EA distributes its gaming content and services through multiple distribution channels as well as directly to consumers (online and wirelessly) through its online portal.
While most tech stocks sold off over the last year, EA held up well and traded mostly sideways. However, a recent earnings report took the stock to 52-week lows. Estimates are falling and investors are getting nervous that the stocks momentum might be turning the wrong way.
About the Company
EA is headquartered in Redwood City, CA.The company was founded in 1982 and employs about 13,000. Some popular EA games include Battlefield, The Sims, Apex Legends, Need for Speed, and license games from others, including FIFA, Madden NFL, UFC, and Star Wars brands.
The company is valued at $31 billion and has a Forward PE of 19. EA holds Zacks Style Scores of “B” in Growth, but “F” in Value and “F” in Momentum. The stock pays a small dividend of 0.7%.
Q3 Earnings
Electronic Arts posted earnings in late January, disappointing investors with an 11% EPS miss. Revenues missed expectations and the company cut its FY22 outlook.
EA also cut Q4 GAAP EPS to a range of $0.05-0.20 v the expected $2.23. Additionally, they cut their FY22 GAAP EPS and their FY22 net bookings.
Management blamed the results on the current macro environment and said they will focus on building for the long-term.
Investors clearly didn’t like the quarter and the stock fell almost 10% the next day. Since then, the stock has drifted lower, along with earnings estimates.
Estimates
Since earnings, the stock has seen analyst estimates drop across most time frames.
Over the last 60 days, the current quarter has been lowered by 40%, going from $2.23 to $1.32. While next quarter estimates are ticking slightly higher, they continue to fall over the long-term. Over the last 60 days, next year’s earnings estimates have fallen from $7.69 to $6.51, or 15%.
Analysts have lowered price targets for the stock as well. JPMorgan took the stock down from $141 to $125. UBS cut to $140 from $155. And Wells Fargo lowered its target to $120 from $150.
Technical Take
The stock held up well for most of 2022 as many stocks were being sold aggressively. We saw a sideways trading range from $130 to $150 until the second half of the year when that range dropped to $115-135.
But with the stock hitting 52-week lows, it looks like another trading range will develop, possibly in the $100-120 range.
The upside seems very limited, with the 200-day MA being major resistance at $124. Zooming the chart out, a break of the $105 level could bring some technical selling down to the 85-$90 area. This range was a big consolidation area in 2019 and should offer support.
Summary
EA was giving investors a nice place to hide in 2022. However, the stock is looking very weak after the latest earnings report. Investors should be cautious as technical selling could bring the stock under $100 rather quickly.
For those interested in the sector, a better option might be Take Two Interactive (TTWO - Free Report) . While the stock is a Zacks Rank #4 (Sell), it is coming off a 6% EPS surprise and trading near 2023 highs.