Games Giant Electronic Arts to Acquire Codemasters for $1.2 Billion; Target Price $150

Electronic Arts, one of the world’s largest video game publishers, announced to acquire the UK-based game developer and publisher Codemasters for $1.2 billion and the deal is expected to be completed in the first quarter of next year.

According to the deal, Codemasters’ shareholders will be entitled to receive 604 pence or $7.98 in cash, a premium of more than 13% to the last trading price.

“Video Games’ COVID-19 boost will outlive the pandemic, we believe, with a larger TAM and better digital margins.  This effect boosted stocks globally but the avg >100% YTD gains and 76% re-rating in Pan-European stocks tops the pile,” said Ken Rumph, equity analyst at Jefferies.

“With another 3% post-vaccine increase, we find valuations unsustainable as growth generally slows in 2021. UK stocks were Brexit havens. We cut PDX, FDEV from Buy to Hold; CDR, TM17 from Hold to U/P. Accelerating UBI, KWS remain Buys,” Rumph added.

Electronic Arts’ shares closed 0.83% higher at $135.80 on Friday; the stock is up over 26% so far this year.

Electronic Arts Stock Price Forecast

Seventeen equity analysts forecast the average price in 12 months at $144.28 with a high forecast of $165.00 and a low forecast of $124.00. The average price target represents a 6.24% increase from the last price of $135.80. From those 17 analysts, eight rated “Buy”, nine rated “Hold” and none “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $140 with a high of $150 under a bull-case scenario and $110 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the world’s largest video game publishers’ stock.

Several other analysts have also upgraded their stock outlook. Electronic Arts had its target price cut by investment analysts at Wells Fargo & Company to $145 from $155. The brokerage currently has an “equal weight” rating on the game software company’s stock. MKM Partners boosted their price objective to $160 from $144. Needham & Company LLC boosted their price objective to $165 from $150 and gave the stock a “buy” rating.

In addition, Ascendiant Capital raised the stock price forecast to $167 from $165; Evercore ISI initiated with inline rating and $135 price target; Truist Securities lowered the price objective to $138 from $153 and Benchmark upped the target price to $163.

Analyst Comments

“Shift to digital is a secular tailwind as full game downloads have 20% higher margins than physical disc sales and extra digital content has even higher margins. We forecast full game downloads to increase over the next 5 years and extra digital content to increase as well resulting in gross margin expansion,” said Brian Nowak, equity analyst at Morgan Stanley.

“Room exists for further margin expansion in R&D and Sales and Marketing as EA benefits from the shift to digital and is able to better target its gamer audience,” Nowak added.

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