EA stock rating pushed north

Decision to include M-rated games in catalog turns heads on Wall Street; predictions of imminent console price drops and today's TRST figures support assessment.

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What do you call it when a juggernaut gets bigger? When it's game publishing biggie Electronic Arts making some good moves, Wall Street seems to call this "a good thing."

According to a report issued today by Wedbush Morgan Securities, the outlook for Electronic Arts looks bright. Wedbush today changed its recommendation on EA stock from "hold" to "buy." The firm is expecting EA's current stock price of $47 and change to hit a mark some $10 higher within the next 12 months.

Wedbush Morgan outlined some compelling reasons for thinking so highly of EA's possibilities for growth: First, EA is returning to the world of Mature games with The Godfather (the company hasn't released a Mature-rated game since Global Operations in March of 2002). This acceptance that the audience for video games is old enough and mature enough to be able to purchase, play, and enjoy mature-themed games sets EA up to sell through to a more diverse market, a market that it hasn't been focusing on.

Second, EA has charted impressive sales with James Bond 007: Everything or Nothing moving a very impressive estimated 500,000 units in two weeks--and that game looks to keep selling as time goes on, truly Everything, not Nothing.

And lastly, March, always a big month for baseball game sales, looks to be easy pickings for EA's MVP Baseball 2004, as 989 Sports' MLB 2005 is being released only on the PS/PS2; Acclaim's All-Star Baseball and Sega's ESPN Major League Baseball won't be released until late in the month; Midway's MLB SlugFest has been pushed back to summer of this year; and other past competitors (3DO, Microsoft) are either out of the race completely or are not going to be a factor this year, according to Wedbush Morgan. If the wind is right, EA could hit it out of the park and really expand on last year's 145,000 units sold.

Wedbush analyst Michael Pachter added some speculative spice to the mix when he said in the report that "in addition to the catalysts expected from performance of [EA's] key games, we anticipate that Electronic Arts shares will trade higher when console prices are cut (expected as early as next week from Microsoft, and by mid- to late-April from Sony)."

Wedbush later expanded on its assessment of Electronic Arts after the market closed today. With NPD Funworld's February 2004 TRST data released to the industry, Wedbush noted that sales for the month were slighty off its predictions. Overall sales for the month tallied $348.4 million, up a hair more than 5 percent over February '03 (Wedbush had predicted sales of $385 million).

However, Wedbush analysts pegged Electronic Arts as having "the most impressive results." EA checked in with February sales of $79.8 million, THQ collected $22.7 million in sales, and Take-Two tallied $21.6 million in sales. Both Acclaim and Midway "came in slightly below [Wedbush] estimates" at $4 million in sales each.

Considering that Electronic Arts already has an extensive catalog of games and a group of ongoing franchises that can be leveraged across multiple platforms, you've got a recipe for the largest game publisher to keep on growing, and Wall Street likes big to get bigger.

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