It's time for a Wall Street pop quiz.

You're a notorious video-game publisher with a checkered past. You post fiscal fourth-quarter results that surpass expectations, but you temper that by hosing down profit targets for the seasonally spiked quarter that encompasses the holiday season. Which of the following things are likely to happen?

A. Analysts upgrade your stock.
B. Your shares open higher.
C. All of the above.
D. Are you nuts? It's got to be none of the above.

The answer, of course, is C. Really. Take-Two Interactive's (NASDAQ:TTWO) shares opened higher this morning, fueled by a Citi analyst who's looking beyond a moribund quarter.

That's the right thing to do with Take-Two. The company's highly anticipated Grand Theft Auto IV won't reach retailers until April. So even if the current quarter won't be a telltale biggie, Take-Two is sticking to its full-year guidance that calls for non-GAAP profits between $1.30 and $1.50 a share, on $1.1 billion to $1.4 billion in revenues.

One final look back
Take-Two closed out fiscal 2007 in good shape. Revenues inched 10% higher, with non-GAAP income coming in at $0.05 a share, reversing a small loss a year earlier. The company backs out stock-based compensation, unusual legal expenses, and asset-reshuffling hits to arrive at its adjusted profitability. If you crave the bottom line as reported, just note that the $0.10 loss is half of what the company bled a year ago.

BioShock, having moved more than 2 million copies during the quarter, has been a runaway hit. Carnival Games was the best-selling third-party game for Nintendo's (OTC BB: NTDOY.PK) Wii during September. The company's NBA 2K8, another winner, outsold its basketball competition. Take-Two may have been dealt a blow a few years ago, when Electronic Arts (NASDAQ:ERTS) landed exclusive rights with the NFL for teams and players, but at least Take-Two's got game on the hard court.

The story of 2007 is about the company's transformation. It is no longer a one-hit wonder, with its 10 most successful releases accounting for just 27% of its revenues for the year. Things would have been different if Grand Theft Auto IV hadn't been bumped out of fiscal 2007, but this is still a far cry from fiscal 2005, when the company's 10 biggest sellers accounted for nearly half of the revenue-mix pie.

The company has also managed to shave $25 million in annual operating costs, shrewd moves that will be more evident as we work our way through fiscal 2008.

One good look ahead
It's easy to see why the Citi analyst is giddy enough to raise his price target on the stock from $23 to $25. The release of Grand Theft Auto IV at the end of the company's fiscal second quarter is really just the beginning. Microsoft (NASDAQ:MSFT) is paying up for Xbox 360 digitally delivered exclusive installments to the game.

The pipeline is also fluid, with new titles coming out of the Midnight Club, Bully, and Civilization franchises. This isn't the same naughty Take-Two that lived and died by Grand Theft Auto release dates.

These days, Take-Two is making waves in casual games and it's even a force in kid games. Really! The same company that has been known to push the limits of the video-game ratings board is teaming up with Viacom (NYSE:VIA) to put out Nickelodeon-themed titles. Is this Take-Two or the kid-friendly THQ (NASDAQ:THQI) that we're seeing here? 

The company has another potential blockbuster in the works with Borderlands. The game won't be out for another nine months, but it has already won raves from most of the industry's media publications. BioShock took the market by surprise. Borderlands will not.

Take-Two's revival is coming at the perfect time. The next-generation consoles now have a couple of years of installed bases under their belts. Digital delivery and Web-served in-game advertising are providing companies with lucrative outlets to create incremental profits that just didn't exist a couple of years ago.

You also have Activision's (NASDAQ:ATVI) combination with Blizzard, raising the stakes and making independent darlings like Take-Two attractive takeover fodder.

Throw this all in with a stock that is fetching just 12 to 13 times forward non-GAAP guidance, and you have a steal worthy of some of the strong-armed crimes committed in Take-Two's Grand Theft Auto franchise.

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It's no wonder David Gardner recommended Take-Two Interactive to Rule Breakers subscribers two months ago. Microsoft is an Inside Value stock pick. Electronic Arts, Nintendo, and Activision are Stock Advisor selections. You don't need to steal a car to test-drive any of these newsletter services. We'll give you the keys for free, with 30-day trial subscriptions. Drive safely, and enjoy the ride.  

Longtime Fool contributor Rick Munarriz has played a few of the Grand Theft Auto games, though he's never been much of a carjacker. He does not own shares in any of the companies in this story and is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.