Activision Blizzard (NASDAQ: ATVI) shares jumped 5% Tuesday morning after Goldman Sachs (NYSE: GS) analyst Michael Ng upgraded the stock to a Buy from neutral and added it to the firm’s conviction buy list.
According to Ng, the company “is on the cusp of an earnings inflection,” he wrote.
Ng also argued that new content from the game maker could boost user engagement for several of the company’s flagship titles.
“Specifically, ‘Overwatch’ engagement is likely to improve following the introduction of Storm Risking (PvE), Workshop mode, and Havana,” he wrote. “‘Hearthstone’ likely will benefit from Rise of Shadows (expansion) and The Dalaran Heist (solo story mode), while ‘World of Warcraft’ should benefit from Classic and Rise of Azshara.”
There’s no question that Overwatch has become one of Activision’s top gaming experiences.
Since its May 2016 release, Overwatch has become one of the company’s eight $1-billion-plus franchises, and has become the foundation for Activision’s Overwatch League, the company’s biggest step into the e-sports world.
The Goldman analyst also pointed to the upcoming releases of Diablo Immortal and Call of Duty’s new battle royale mode, which is a hotly anticipated option for active players.
Ng also noted the potential for yet-to-be-announced new content from several “under-monetized” Blizzard franchises in 2020 and beyond as reasons behind the upgrade, which would open up additional and more lucrative sources of revenue for the company.
The video game maker’s stock has lost nearly half of its value since peaking back in October, but Ng believes the sell-off has been overdone.
When adding the stock to Goldman’s “America’s Conviction List,” Ng raised the price target on ATVI from $50 to $54, which indicates possible upside of 24% over the next twelve months.
There are currently 20 analysts that rate ATVI a Buy. Their average price target for the stock is $61.67, indicating possible upside of 41.57% over the next twelve months.