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Activision (ATVI) Upgraded to Strong Buy on Impressive Q2

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On Aug 9, Activision Blizzard Inc. (ATVI - Free Report) was upgraded to a Zacks Rank #1 (Strong Buy). The upgrade can be attributed to strong second-quarter 2017 results. Management also raised 2017 guidance.

In the last reported quarter, adjusted earnings of 51 cents per share surpassed the Zacks Consensus Estimate of 25 cents. We note that Activision beat the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 52.54%.

Revenues of $1.42 billion were better than the consensus mark of $1.21 billion, driven by continued strength in digital revenues, success of Overwatch and the buyout of King Digital Entertainment.

The robust performance drove current quarter and full year estimates in the last seven days. The Zacks Consensus Estimate for the third quarter and full-year 2017 increased 13.6% and 2.2% to 50 cents and $1.86, respectively.

We also note that Activision has outperformed the S&P 500 on a year-to-date basis. While the stock returned 69.8%, the index gained 10.6%.

Growth Catalysts

Activision has been benefiting from its focus on broadening its franchise portfolio, innovation and initiatives to expand to new geographies. Its offerings like StarCraft, World of Warcraft, Heroes of the Storm and Call of Duty are widely popular and should continue to contribute to the bottom line.

Moreover, Activision is aggressively working on becoming a media entertainment giant, somewhere on the lines of The Walt Disney Company. Apart from launching a movie studio, the company is also strengthening its presence in the lucrative e-sports market. Recently, with Overwatch recording stupendous success with 30 million players so far and counting, Activision announced the launch of Overwatch e-sports league. Notably, the bids for the first seven teams (city-based) of the Overwatch league have already been completed. It also introduced a new consumer product division to be spearheaded by ex-Walt Disney executive, Tim Kiplin.

Other Key Picks

Alibaba Group Holding (BABA - Free Report) , Luxoft Holding (LXFT - Free Report) and Lam Research (LRCX - Free Report) are the other top-ranked stocks in the sector. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alibaba, Luxoft Holding and Lam Research is projected to be 28.97%, 20% and 17.2%, respectively.

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