Sam Boughedda

David Karnovsky, analyst at JPMorgan, moved Take-Two Interactive (NASDAQ:), interactive to Overweight on Thursday with a $175 target price.

Take-Two, which JPMorgan previously had no rating on, with the close of the Zynga acquisition, now offers a scaled portfolio of mobile games, a leading PC/console IP, and a pipeline of content set to ramp significantly, said Karnovsky. Take-Two had been rated neutral in December 2021 before the restriction.

“Shares are down 20% since the announcement of the deal on Jan 10, underperforming the S&P (-12%). On our combined company estimates—which assume TTWO only grows F21-F24 revenue at an 11% CAGR vs. guidance for 14% and excludes any long-term revenue synergies— the stock trades at ~12x our FY24E adj. EBITDA is 16x our adj. The analyst added that EPS is below the pre-pandemic multiples 16.5x/21.5x and EA at 14.5x/18x. (P/E excludes cash).

JPMorgan thinks the stock is indicative of a depressed mood toward mobile gaming in general. The sector continues to navigate platform privacy changes (primarily Apple’s ID for Advertisers) and comping some pandemic benefits.

We expect these headwinds will ease over the next quarters and we further see the post IDFA landscape favoring scaled players that have access to a vast player base and advertising resources. The company is also well-positioned to add to its mobile portfolio amid a less competitive environment for M&A,” wrote Karnovsky.

While execution on integration and the pipeline is risky, current valuation offers some safety. However, there are potential upsides to be had. TTWO, according to our analysis, is one of the few stocks with both value and growth. There are also limited risks from macro factors like inflation and recession.