Take-Two, IGT, Electronic Arts: Why Gaming Stocks Looking Better?

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Gaming stocks are looking better and worth going long after the latest quarterly results which have been anything but disappointing. Here is a closer look if Take-Two Interactive Software, Inc. (NASDAQ:TTWO), International Game Technology (NYSE:IGT), and Electronic Arts Inc. (NASDAQ:EA) deserve investors’ money;

Take-Two Interactive

Take-Two Interactive Sales

Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is primarily a developer of games for consoles such as PlayStation, Xbox, Nintendo Wii etc. The company develops games for personal computers and handheld devices too but these activities account for less than 20 percent of its revenue. In the last 12 months, console gaming generated $975.9 million in sales out of total $1.21 billion. After a troubled first half in last fiscal year, the latest two quarters for Take-Two have been underlined by profitable operations.

This was specifically true for the last quarter which saw revenues doubling to $299.5 million while bottom-line swung to a profit of $22.5 million from a loss of $66.8 million. On a yearly basis, Take-Two is still not profitable but the stock price of $16 which is a mere 16 percent premium to sales is not on the higher side. What makes Take-Two interesting is the future prospects. The company says it expects to book earnings per share in excess of $2 on sales of at least $1.75 billion – a full 44.6 percent above the previous year. Analysts are buying this vision and Macquarie and BMO upped their target price reflecting at least 25 percent upside from here.

Electronic Arts Inc. (NASDAQ:EA) is another consol gaming software company which has found investors ready to lap up its shares. After a couple of unprofitable quarters and poor launch of one of its new game, credibility of Electronic Arts was under doubt but that changed with fourth quarter financial performance which was better than expected. The March quarter is usually the strongest of the four quarters and even though the company recorded lower sales during the quarter it made up with profits of $323 million, wiping out losses of previous quarters.

On top of this, the company said its full financial year earnings will be ahead of street expectations. This does not look out of place considering that Electronic Arts was recently awarded a lucrative contract to develop Star Wars games by Disney. While Electronic Arts Inc. (NASDAQ:EA) certainly trails its larger rival Activision Blizzard, Inc. (NASDAQ:ATVI) in terms of popular game franchises, this latest development indicates the stock may finally be catching up.

Gaming stock of a different type

International Game Technology (NYSE:IGT) is another gaming company but this company’s focus area is gaming hardware rather than software. The company deals in casino games, gaming equipment and systems technology. In the second quarter of the current fiscal, the company reported 11 percent growth in revenues to $600 million while profits grew 26 percent to $78.2 million. While this is strong growth in itself, the effect is further magnified by the company’s share repurchase offer which caused a 38 percent growth in earnings per share during the latest quarter.

Since this is slightly more capital intensive business, International Game Technology has a debt gearing of 1.47. This is a bit on the higher side but the company generates enough profits to service interest outgo. In fact, its profit margin improved to 13 percent in the latest quarter, up from 11.6 percent for last year. At current price of $17.3, the stock trades at a forward price earnings ratio of 12.7 and offers dividend yield of nearly 2 percent. Deutsche Bank AG (NYSE:DB) has a buy call on the stock with a target price of $20.

Overall, first quarter results of these gaming stocks allude to better times ahead. While these are tough times for console gaming companies especially Electronic Arts Inc. (NASDAQ:EA), old economy stocks such as International Game Technology (NYSE:IGT) offer a safer option to investors.

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