Electronic Arts Stock Dragged Lower By Weak Holiday Forecast

At least seven brokerages have issued price-target cuts today

by Patrick Martin

Published on Oct 31, 2018 at 9:24 AM

After adding 4% yesterday on the back of Take-Two Interactive's (TTWO) successful "Red Dead" roll-out, the shares of Electronic Arts Inc. (NASDAQ:EA) are down 4.3% ahead of the bell this morning. While the video game maker reported fiscal second-quarter earnings and revenue that exceeded analyst expectations, it forecast third-quarter revenue -- a period which encompasses the key holiday season -- below estimates due to the delayed launch of its "Battlefield V" game.

In response, at least seven brokerages have issued price-target cuts on Electronic Arts stock this morning, including Cowen to $93 from $111 -- the lowest on Wall Street. Analysts at Barclays and Credit Suisse also cited the slow sales numbers for EA's "FIFA" game as a negative catalyst. 

Cowen's new price target is a shade below EA's close last night at $94.83. The stock has been stair-stepping lower since its mid-July peak at $151.26 under pressure from its 40-day moving average, and tagged an annual low of $89.12 on Monday. The equity is currently stuck in a five-week losing streak, and is about to turn in its worst month in 10 years. 

Amid these technical struggles, shorts have been cashing out. Short interest fell by 8% in the most recent reporting period to 8.09 million shares. This represents a meager 2.7% of EA's total available float, and only 1.8 times the average daily trading volume. EA's inability to capitalize on this recent burst of buying power points to its underlying weakness.

In the options pits, the mood has been bearish ahead of earnings. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), EA's 10-day put/call volume ratio of 1.27 ranks 3 percentage points from an annual high, meaning puts have been bought to open over calls at a quicker-than-usual clip.

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