BMO Capital Markets analyst Gerrick Johnson ended his bearish call on one gaming stock this week as the analyst says video game stocks have become a safe hideout amid market uncertainty.
“As investors grow more fearful of an economic downturn, we think valuation multiples of video game companies could expand, as the video game industry is quite defensive,” Johnson said in a note. “Interactive entertainment is one of the most inexpensive forms of entertainment as measured by cost divided by time consumed.”
According to Johnson, gaming stocks “will be increasingly seen as safe havens” under the threat of an economic downturn and believes consumers who lose their jobs or who are worried about losing their jobs may choose to play more video games rather than spend money on costlier forms of education and entertainment.
Johnson also noted that video games could emerge unscathed from the trade war as the sector is mostly immune from import tariffs as digital code isn’t taxed at borders.
These factors bode well for Take-Two Interactive (NASDAQ: TTWO). Johnson says Take-Two boasts a “robust” pipeline of game titles, including Borderlands 3 and Outer Worlds in fiscal 2020, which may be followed by a new BioShock in 2021, and eventually a new Grand Theft Auto game.
Given this, Johnson ended his bearish call on Take-Two and upgraded the stock to Market Perform from Underperform, and lifted his price target on the stock to $110 from $95.
The average analyst price target for TTWO is $128.05, suggesting possible upside of nearly 16% from current prices.
The firm sees “a potential inflection in ATVI’s earnings trajectory,” and is optimistic about the company’s content releases, upcoming releases, and its potential to monetize its various franchises.
Activision owns some of the biggest titles in the video game industry, including Fortnite, Overwatch, Call of Duty and PlayerUnknown’s Battlegrounds.
ATVI sank -10% in May after announcing underwhelming first-quarter results. While the company reported both top and bottom lines well above its own guidance, its growth in its user bases failed to impress.
Activision’s CEO Bobby Kotick credited the company’s earnings beat to its “strong operating discipline” and said that they would bolster investments in its largest franchises, which will hopefully increase its user bases.
Analysts are bullish on ATVI, with twenty of the analysts covering the stock rating it a Buy. The average price target for ATVI is $61.21, indicating possible upside of 38.87% over the next twelve months.