Wednesday, April 29, 2009

Activision Blizzard (NASDAQ:ATVI): Upgraded to Conviction Buy at Goldman Sachs

Goldman Sachs upgraded Activision Blizzard (NASDAQ:ATVI) to Buy from Neutral and adds the stock to their Conviction Buy list with a $14 tgt.

Firm believes the timing and magnitude of earnings catalysts in the form of game sales and active share repurchases should restart the trend of positive EPS revisions and improve sentiment on the stock while overhangs fade in importance. In a new detailed analysis, they find ATVI shares over-discount music genre fatigue and the Warcraft transition. Goldman sees Warcraft and other IP offering improved visibility into their c. 2%/8% revised, above consensus 2009/2010 EPS and sustainable earnings as a key driver of stock appreciation through 2H’09.

The primary catalysts spurring visibility into sustained earnings power and their above consensus $0.80 2010E EPS will be the 2H09 game slate, led by perennial titles (Call of Duty, Guitar Hero, World of Warcraft, even ex-China), but also with new or refreshed IP (Tony Hawk, DJ Hero, StarCraft 2, Racing title, Prototype, Singularity, etc) and understanding of the relative contribution by franchise, offsetting music genre fatigue. In order of timing, 1Q09 results on May 7th, a resumption of share repurchases post 1Q results, and the E3 show from May 31-June 3, should all ease inflated concerns of earnings growth and volatility. Goldman's new Franchise Analysis illustrates that Call of Duty and WoW represent about 85% of operating income. As the more critical drivers, ongoing Warcraft and CoD strength more than compensate for Guitar Hero franchise risks, in firm's view.

Notablecalls: I think this may the call the stock needed to get moving. I see it up 5-6% today. Anything below that is a buy in my book.

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