EA: Analysts differ, but is it time to buy?

Electronic Arts this week made news when it settled (out of court) a class-action lawsuit by computer graphic artists seeking overtime compensation. On Wednesday, the company said it would pay the lead plaintiff and others in Jamie Kirshenbaum vs. Electronic Arts, Inc. the sum of $15.6 million. With the courts approval expected in the next few days, company officials say the full amount of the settlement should be tendered to a court-appointed administrator in no more than five months.

The suit had been filed in July 2004 and alleged that the company improperly classified certain workers as exempt from overtime.

The news, however, failed to stop the stock from a steady decline throughout the week--ERTS hit an intraday high of $57.06 on Monday, closing down more than $4 from that high to $52.77 today.

But that may be good news for those inclined to buy on the dip as one widely read analyst today reiterated his BUY rating on the stock. Interestingly, that BUY rating comes on the heels of harsh words for ERTS from the fiery-mouthed Jim Cramer, host of CNBC's Mad Money.

While Cramer has been mostly bullish on the ERTS stock, saying last month that "if you're willing to hold it for three years, I think you're going to make a lot of money," this week he advised TV listeners to sell the stock in advance of EA's upcoming Q2 earnings call (expected in the next two weeks).

Cramer said sources had told him the company would likely miss earnings targets of $0.00-0.05 earnings per share. EA's second fiscal quarter closed September 30, 2005.

Surprisingly, coming to the defense of EA was the usually skeptical Michael Pachter of Wedbush Morgan Securities. In a memo today, Pachter said he expected the company to report earnings of $0.07 per share--and he also sees a silver lining in the dip: "We think that recent share price weakness provides an attractive entry point for investors," Pachter said today.

Pachter held fast to his BUY rating on EA (a rating he has had on the stock since his September 9 move from HOLD) and maintained a price target of $66.

"We have reviewed EA's lineup on a game-by-game basis and believe that the company is well ahead of expectations for the quarter," Pachter added. "For the September quarter, the company has delivered US sell-through above its performance from last year. As we review its release schedule in September, we believe that only Marvel Nemesis performed poorly, with all other releases posting solid results."

SchaeffersResearch.com writer Jocelynn Drake offered her perspective as well today, citing Zacks coverage that lists 13 of the 21 analysts who follow ERTS rating it a BUY or better. Still, she added some strength to Cramer's recent nay-saying by commenting that the "bullish configuration leaves ample room for potential downgrades, which could spell trouble for the [stock]."

One more stat for the record book, and one that could be interpreted negatively, is the likely shortfall of this year's Q2 earnings when compared to last year's Q2. Regardless of who is right this year--Cramer, Pachter, or Drake--the facts show that 2004's second fiscal quarter saw earnings of 31 cents a share, a number that seems unfathomable today.