Take-Two stock gets upgraded

Pacific Crest Securities' Evan Wilson bumps his estimation of Grand Theft Auto publisher's shares up to "outperform."

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Take-Two Interactive is all over the news today. First the publisher announced its entry into the boxing genre with Don King Presents: Prizefighter, then it won an appeal in the British courts to overturn a ban on Manhunt 2. Now one analyst is changing his opinion of the company's stock.

Pacific Crest Securities' Evan Wilson today changed his assessment of Take-Two stock from "Sector Perform" to "Outperform," which indicates his belief that the publisher will outpace the general gaming industry for the next 12 months. However, this is a reflection both of Wilson's expectations for Grand Theft Auto IV, as well as a general slowdown in the growth pace of the industry at large.

Wilson also said the stock may benefit from speculation of a buyout prompted by the recent Activision-Vivendi Games merger. However, he notes such a deal might be less likely than ever, given that Activision and Vivendi were two of "only a few qualified potential acquirers," and they are both effectively out of the equation now.

For Take-Two to hit its projections, Wilson estimates that it will need to sell 8 million copies of Grand Theft Auto IV this fiscal year, with 4 million at launch (the company's fiscal second quarter), and 2 million each in the third and fourth quarters. He also admits that number could be tough to reach due to the limited installed user bases for the Xbox 360 and PlayStation 3, which he estimates at 24.4 million in the US, Europe, Middle East, and Africa through March 2008.

Even so, Wilson believes the publisher will stand out from its peers as the industry growth tapers off or even declines slightly over the first half of 2008. And if Take-Two can actually address a number of issues that have plagued it in recent years--including lack of consistency, run-ins with government regulators, an unprofitable 2K Sports line--it has the potential to double its share price.

"Even with our reservations, we can't ignore the fact that more and more investors will come to understand this potential as they are forced to take another look at Take-Two due to the upcoming release of GTA IV," Wilson wrote.

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