Wells Fargo upgraded analyst Brian Fitzgerald moved his rating on Activision to overweight from equal weight and kept the $95 price target, noting that even though the antitrust landscape across the globe remains "uncertain," the stock does not reflect the company's potential.
"We believe the market is likely undervaluing the company due to: a failure to consider the impact of a $3B breakup fee; an under-appreciation of the company's prospects as a standalone video game publisher, and quite possibly; a miscalculation of the deal's chances at getting through antitrust," Fitzgerald wrote in a note to clients.
Fitzgerald added that if the deal does not close, Activision is set to receive a $3B breakup fee and even at a conservative 13.5 multiple to consensus 2023 EBIT estimates, the stock is worth $76 per share.
"From our conversations with event-driven and M&A arb traders, we believe most are using $64-72 as a breakup price, at which the current price of ATVI ($73.47) implies a 6-31% chance that the deal closes," the analyst added.
Fitzgerald also pointed out Activision's "record-breaking" Call of Duty launch, which generated $1B in sell-through in the first 10 days, as well as strong engagement in Overwatch 2 and continued strength in its mobile division.
Truist analyst Matthew Thornton also upgraded Activision, moving his rating to buy from hold, noting that even without the $69B deal from Microsoft, the company has improved its fundamentals, as well as the fact it could have between $12B and $13B in net cash that could be used for buybacks or other purposes, such as deals.
"Activision should have a big 2023 with [Call of Duty] in a very healthy place (record recent MW2 launch, plus recent Warzone 2.0, plus upcoming Warzone Mobile in 2023), with [World of Warcraft] in a healthy place (recent Classic content, upcoming Dragonflight expansion), with dormant Overwatch and Diablo franchises being stood-up again (with Overwatch 2, including PvE in 2023, and Diablo IV in 2023), with Blizzard mobile in a healthy place (Diablo Immortal plus Warcraft Arclight Rumble, we assume in late 2023, and we believe more in the pipeline beyond 2023), and King continuing to be solid/consistent," Thornton wrote in a note to clients.
Analysts are now saying that even if the acquisition fails, ABK is a great investment, and pointing out that ABK will receive $3bn from MS if it fails, Lol. This one from Wells Fargo in particular doesn't seem convinced that the deal will pass. I'm fairly confident if delayed past July 23 and if ABK continues to be healthy, Microsoft will have to pay a lot more than $68bn.
Last edited by Ryuu96 - on 28 November 2022
