Can Activision Outperform a Chaotic Industry?

With shares of Activision Blizzard, Inc. (NASDAQ:ATVI) trading around $11.52 per share, is ATVI an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s MovementCall of Duty

Activision closed up 5.4 percent on January 11 following a bullish note from the Cowen Group. Despite what has largely been an off year for the gaming industry — shares of Activision were down about 13 percent for 2012 — Cowen thinks Activision has strong feet heading into 2013. A strong fundamental position relative to its peers, rising game subscriptions, and several compelling new titles lined up for this year could all contribute to growth.

On November 16, the company issued a press release stating that one of its flagship titles, Call of Duty, achieved more than $500 million win worldwide sales within 24 hours of the release of the franchise’s latest installment, Black Ops II.

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According to CEO Bobby Kotick: “Life-to-date sales for the Call of Duty franchise have exceeded worldwide theatrical box office receipts for “Harry Potter” and “Star Wars,” the two most successful movie franchises of all time. Given the challenged macro-economic environment, we remain cautious about the balance of 2012 and 2013.”

Activision will release its fourth-quarter earnings on February 8. At a glance, analysts are expecting earnings of $0.71 per share, a 14.5 percent gain year over year.

E = Equity to Debt Ratio is Zero

Activision’s debt-to-equity ratio is non existent, because the company has no debt. This is particularly attractive given its relatively large war chest of $3.36 billion in cash. This compares favorably to its closest competitor, Electronic Arts Inc. (NASDAQ:EA), which has a debt-to-equity ratio of 0.25, with $1.32 billion in cash and $549.00 million in debt.

Take-Two Interactive Software Inc. (NASDAQ:TTWO), the runt of the game-publishing family, falls at the bottom of the heap with a debt-to-equity ratio of 0.67, and is sitting on $328.28 million in cash and $325.54 million in total debt.