Although Take-Two Interactive (NASDAQ: TTWO) publishes some of the best games in the world, including the Grand Theft Auto (GTA) and Red Dead Redemption franchises, that’s not enough to keep the Wall Street firm Jefferies Financial Group from downgrading its stock rating from buy to hold on Thursday. Additionally, the price target was lowered from $135 to $115. The announcement sent shares of the company tumbling by more than 1%.
No hits on the horizon for Take-Two Interactive
According to Jeffries analyst Timothy O’Shea, the change is happening because the publisher doesn’t appear to have any huge hits on the horizon, which makes the stock vulnerable.
“TTWO possesses the most high-quality content amongst the US publishers, yet valuation feels full at ~25x fiscal 2021 EPS (near-all time highs),” wrote O’Shea. “Despite the undeniable success of ‘Grand Theft Auto’ & ‘Red Dead Redemption’ and the long-tail revenue contribution, we believe TTWO is now in a ‘soft spot’ when considering the timing of the next major release. Fiscal 2020 comps are tough after the ‘Red Dead Redemption 2’ release, and we don’t anticipate ‘GTA VI’ until fiscal 2022.”
The news comes on the same day Take-Two announced that it will be showing a brand new game, Disintegration – developed by Halo co-creator Marcus Lehto – at Gamescom in Cologne, Germany next month. The publisher has also been steadily ramping up promotion for the action shooter game Borderlands 3, which was formally announced in April and is scheduled to release this September. But as popular as the Borderlands franchise might be, it doesn’t quite match with that of GTA.
Jeffries noted that all the major video game publishers, including Take-Two Interactive, Electronic Arts (NASDAQ: EA), and Activision Blizzard (NASDAQ: ATVI) are expected to grow revenue below industry levels during the current fiscal year.
However, Jeffries analyst Alex Giaimo went so far as to name Activision as a “Top Pick” in video game stocks. He rated the stock as a buy with a target price of 56, citing this fall’s upcoming game Call of Duty: Modern Warfare as a big catalyst for the publisher. The news lifted the company’s stock by almost 1% on Thursday.
Social and mobile game maker Zynga is another of Giaimo’s picks, as he rated the stock as a buy and raised its price target from 7.5 from 7. On the flip side of that, the underwhelming response to season two of Apex Legends and the company’s struggle to develop consistent non-sports breakout games led him to rate Electronic Arts as a hold with a price target of 100.