NEW DIRECTIONAL CALL PLAYS
Electronic Arts - EA - close: 63.30 change: +0.42
Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.5 million
Entry on May -- at $---.--
Listed on May 18, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
Video game stocks are hitting high scores this year. The two biggest players in this industry are ATVI and EA. Shares of ATVI are at all-time highs while EA is nearing a new 10-year high.
EA is considered part of the technology sector. According to the company,
"Electronic Arts ( EA ) is a global leader in digital interactive entertainment. The Company delivers games, content and online services for Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players around the world. In fiscal year 2015, EA posted GAAP net revenue of $4.5 billion. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality blockbuster brands such as The Sims, Madden NFL, EA SPORTS FIFA, Battlefield, Dragon Age and Plants vs. Zombies."
Shares of EA popped above major resistance near the $60.00 level earlier this month after reporting better than expected Q4 2015 results. Wall Street was looking for EA to deliver a profit of $0.26 a share on revenues of $852.9 million. EA announced a profit of $0.39 a share. Revenues were down -2.0% from a year ago but came in at $896 million, well above estimates.
Their full year results were impressive. EA's net revenues were up almost $1 billion to $4.5 billion. The company's net income soared from $8 million in 2014 to $875 million in 2015. Shares of EA have benefitted from the company's turnaround. The stock is up more than +100% in the last 12 months.
EA's guidance was mixed. They issued bearish guidance for their Q1 2016 (current quarter) and see EPS about flat ($0.00) when Wall Street was expecting $0.19 per share. EA is forecasting Q1 revenues significantly below expectations. However, they raised their fiscal year 2016 profit estimate to $2.75 per share when analysts were only expecting $2.63.
Last quarter EA spent $95 million buying back 1.8 million shares of their stock. When they reported earnings on May 5th they also announced a new $1 billion stock buyback program that expires on May 31, 2017.
EA management sounds pretty optimistic. Here's an excerpt from their earnings press release:
With a clear focus on putting our players first, FY15 was an exceptional year for Electronic Arts. We introduced award-winning games, delivered enduring entertainment in our live services, and forged deeper relationships with a growing global audience across consoles, mobile devices and PC, said Chief Executive Officer Andrew Wilson. EA continues to sharpen our focus and speed, and in the year ahead we will engage more players on more platforms with new experiences like Star Wars Battlefront, FIFA 16, Minions Paradise and more.
Two years ago, we discussed a three-year plan to double non-GAAP operating margins to 20%, said Chief Financial Officer Blake Jorgensen. Today, Im happy to announce that we exceeded our goal a full year ahead of schedule. Looking forward, we anticipate continued earnings growth driven by our strong portfolio, investment in new IP, the market shift to digital, and on-going cost discipline.
Wall Street's analyst community seems bullish on EA as well. Several firms reiterated their bullish ratings and raised price targets.
Shares of EA have been building on a bullish trend of higher lows. The current rally has produced a buy signal on the point & figure chart that is forecasting a long-term target of $110.00. On a short-term basis EA seems to be coiling for a breakout past resistance near $63.50. Tonight we're suggesting a trigger to buy calls at $63.65.
Trigger @ $63.65
- Suggested Positions -
Buy the SEP $70 CALL (EA150918C70) current ask $1.68
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike