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Why Electronic Arts Inc. Shares Will Fly Higher Than $35

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Electronic Arts (NASDAQ: EA  ) soared 17% today after the video game publisher posted a blowout quarter and received a neutral-to-outperform upgrade from Baird.

So what: Along with the upgrade, analyst Colin Sebastian boosted his price target to $37 (from $33), representing about 32% worth of upside to yesterday's close. While contrarian traders might be turned off by EA's recent price strength, Sebastian's call could reflect a growing sense on Wall Street that its turnaround progress still isn't fully baked into the valuation.

Now what: Baird raised its 2015 EPS outlook for EA from $1.52 to $1.86, and its 2016 view from $2.00 to $2.22. "We are raising our rating to Outperform, as EA's strong F4Q results and better-than-expected earnings guidance confirm our constructive view that management is making significant progress toward beating growth and margin goals," said Sebastian. "In addition, we believe execution is improving on digital (e.g., Madden/Ultimate Team), while mobile growth continues, console market share is consolidating, and the next gen cycle offers good visibility for Y/Y growth in F2016." Of course, with EA shares soaring to a new 52-week high today and trading at a 20-plus forward P/E, I'd wait for the excitement to fade before buying into that bullishness.

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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Related Tickers

8/28/2015 3:59 PM
EA $67.91 Up +0.75 +1.12%
Electronic Arts CAPS Rating: ***