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David Gardner versus The Standard and Poor's Company

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October 30, 2008 – Comments (2) | RELATED TICKERS: BBY , GME , ATVI

For all Activision Blizzard investors or those thinking about jumping on the band wagon here, I have to tell you that the Standard and Poor's analysis of Activision Blizzard released 10/24/2008 (the first analysis after the merger with Vivendi that I know of) runs smack up against David Gardner's analysis...and my own.

Standard and Poor's cuts their target by $5 to $15 a share, while David Gardner re-recommended the Stock when it was trading at a price much larger than the S&P target price.

So whose right?  Is S&P wrong and David right to be optimistic about the Vivendi merger and what kind of sales and revenue impact that brings to Activision?  Or is S&P right to be pessimistic in this economy and base their judgement that Video Game sales will fall off a cliff as national unemployment could rise to 7% next year?  (It is currently at 6.1%)

You see.  Standard and Poor's doesn't address specifics and really doesn't even mention the Vivendi merger other than to say, "Great franchises!"  Right.... That's so informative.

They have cut their target price to $15, a target that intraday has already been achived by Activision Blizzard a week or so ago.

The Fundamentals of Activision pre-merger, in terms of 5 year sales growth, is about 27.4%.  That amounts to a 5.5% sales growth annually.  That is without Blizzard and the almighty king of MMOs with 11 million subscribers known as World of Warcraft.

In short... The Company is outperforming their Stock Price by a lot... but unfortunately, I do not know if this coming earnings report will fully reflect the impact that Vivendi brings to the table.  The merger happened 9 days into the quarter so it is not a full quarter's worth of impact that we will see. 

By the next earnings report, though, I would think Standard and Poor's will be forced to bump their target price or face a Wall Street Investment community that will bump that price up to $20 a share for them.

I value ATVI right now at $20 a share because I do not see what S&P sees regarding video game sales.  If they were so bad then why are stores like Best Buy stocking up on their Video Game Inventories? Greater video game inventories means greater expectations that stores have for Video Game sales before they have to report their Inventory to Taxes.

It's simple... If consumer electronics stores are stocking up big on Video Game supplies then these stores are not seeing things the way S&P analysts are.  So, are they hurting themselves or are these stores right to be optimistic about Video Games this Christmas?

 

2 Comments – Post Your Own

#1) On October 30, 2008 at 11:03 AM, Schmacko (47.33) wrote:

ATVI's a tough call.  They're a great company and they make great games.  I owned the stock pre merger and made good money on it and I still like the company (I'm green thumbed in CAPS).  They have almost enough cash on their balance sheet to pay off there debt twice over, which is good. 

I think the main negative is that we're in a recession, ATVI is a growth stock, and we're probably looking at multiple contraction.  On a personal investment level I look at ATVI and think it looks cheap from a historical level, I'm not worried about the company going under, and I think they have great long term growth aspects.  At the same time though it's still got a forward P/E of 17.5 and times are tough.  I can find value stocks that are paying safe 7% dividends with lower P/Es that are probably a safer way to weather out the storm in the near to mid term.

Basically ATVI is one of those stocks you probably need a long investment horizon for.... or you just need to be really good at timing the crazy up and down swings in this volatile market.

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#2) On October 30, 2008 at 1:14 PM, Bupp (28.59) wrote:

Best buys inventories are increasing because they are not making enough sales.  The increasing inventory is a bad sign.  Plus remember that retailers always increase inventory leading into the christmas season.

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