UPDATE: Bank of America Downgrades Changyou on Lack of Upside

In a report published Monday, Bank of America analyst Eddie Leung downgraded Changyou (NASDAQ: CYOU) from Buy to Neutral, but raised the price target from $33.00 to $45.00.

In the report, Bank of America noted, “Co announced a new version of its flagship game TLBB, which accounts for 60%+ of sales. Instead of replacing the existing game, co will run the New TLBB in parallel with the existing game, which will continue to have its own updates and new content. We expect this strategy can 1) avoid disruption to existing loyal user base of TLBB; 2) leverage the game's strong brand to attract back users who left the current TLBB but are curious on new features. In summary, this new version aims at incremental revenues rather than cannibalization. However, given the recent rally that drove PE to 8x on revised estimates, we believe the upside is largely priced in on the back of 1.0x PEG, and moderate decline in op margins to 46% in 15E from 51% in 13E. We cut our rating to Neutral but see support to current share prices due to good cash flows, and a share repurchase program of US$100m, which equals to 13 days of average trading volume in past 3 months.”

Changyou closed on Friday at $41.07.