This downgrade comes after two positive reiterations for the stock earlier in November, one from Credit Suisse reaffirming an “Outperform” and a $16 price target, and another from MKM Partners reaffirming a “Buy” rating and a $17 price target.
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CHEAT SHEET Analysis: What Catalysts are Driving the Stock’s Movement?
One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. Analyst upgrades or downgrades are notoriously strong drivers of buying or selling action.
Analyst opinion of Activision’s stock is pretty favorable right now with most calling the stock a “Buy” or “Strong Buy.” Investors who follow the stock also know that the launch of Call of Duty: Black Ops II pulled in over $500 million in revenue in the first 24 hours of its release, and the stock has come up over 9 percent since the launch.
How Will Analyst Opinion Move Activision’s Stock?
Sterne Agee seems to have become bearish on a stock surrounded by bulls, and it might have sound logic behind its decision. Sales of Black Ops II will cool off and the revenue stream from its historic cash cow World of Warcraft has been drying up. Activision is in an industry that makes profits by releasing blockbuster hits, and while it definitely has a long history of success it will need significant catalysts to reach bullish price targets.
The mean analyst target of $14.88 per share represents nearly a 30 percent upside on its current price. While that target is by no means unattainable, the stock moves in jumps and starts triggered by large releases. It’s important to keep in mind that the stock has come down over 5 percent this year to date.
That being said, Activision Blizzard is the king of a gaming space populated by rivals like Electronic Arts (NASDAQ:EA) (shares down nearly 30 percent this year to date) and flanked by Zynga (NASDAQ:ZNGA) (speaks for itself). Activision’s earnings for the most recent quarter came in at $0.15 per share, beating estimates by 7 cents on a 19.8 percent year-over-year increase in revenue.
As far as the Sterne Agee downgrade goes: shares dipped nearly 2 percent in the morning, but rebounded to close just 0.69 percent lower.