Brean Capital Reiterates Buy, Lowers Price Target On Activision Blizzard On 4Q14 Upside, Weak 2015 Guide

In a report published Friday, Brean Capital analyst Todd Mitchell reiterated a Buy rating on Activision Blizzard (NASDAQ: ATVI), but lowered the price target from $26.00 to $25.00.

In the report, Brean Capital noted, "As expected, Activision reported upside to 4Q14 and a weak 2015 guide. Revenue grew 11% in 2014 and non-GAAP EPS was $1.42, up from $0.95, and $0.10 ahead of beginning of year guidance. However, 2015 guidance of $4.4 billion and $1.15 was well below expectations, with a weak outlook for revenue and margins exacerbated by currency headwinds and a higher tax rate. Although these effects accounted for a large part of the downside from our estimates, excluding their impact shows that Activision is expecting organic declines in the overall business. While Activision is known for its conservative guidance, it seems exaggerated for 2015 in light of the potential for strong sell through of its major franchises, the positive feedback loop of scale for DLC including an alluded "mega" digital content offering for Destiny, and strong prospects for Blizzard's free-to-play title. We expect the PS4/Xbox One console base to continue to outpace the prior-gen cycle throughout 2015, accelerating consumer preferences towards digital transactions and further consolidating the industry around blockbuster AAA franchises, a segment which Activision now dominates. We will play their game for now and bring our estimates in line with guidance, and are trimming our target price to $25 from $26 as a result, but honestly, we expect upside to this outlook. Maintain Buy."

Activision Blizzard closed on Thursday at $21.82.