The Analysts Downgrade Take-Two Interactive On Weak Guidance
Take-Two Interactive (NASDAQ: TTWO) is a powerhouse in the gaming world and one that is about to grow with the incorporation of Zynga into the fold. The stock is rebounding strongly in the wake of the Q4 results but we aren’t buying into the move because the institutions have been capping gains in the stock. While price action is at a low now, it is still well below key resistance levels and trends are downward. In this scenario, we see price action hitting a wall in the $140 to $150 range and then moving sideways from there.
The institutions still hold about 88% of the stock, it is the balance of their activity that is concerning. The institutional activity has been vigorous over the past two years and has been net-bearish for 4 of the last 7 quarters. While activity has been winding down on a volume basis, the to-date activity in Q2 is still substantial and net-bearish as well. This history activity is coincident with a topping in the market in 2021 and with a move to new lows in 2022, so we are viewing our resistance targets as “strong”. In regard to the insiders and large shareholders, there were no transactions for 5 quarters until very recently when President Karl Slatoff sold shares worth $21.125 million. Not a large amount but perhaps telling in its timing.
The Analysts Lower Take-Two Price Targets
The analysts are lowering Take-Two Interactive’s price targets following the fiscal Q4 results. So far, we’ve seen 6 commentaries from a possible 19 analysts currently covering the stock, and none are positive. No commentary includes a rating change so the Insidertrades.com consensus remains a firm Buy. The Insidertrades.com consensus price target, however, is moving lower and down in the 12, 9, and 3-month comparison. The range of new targets is $145 to $195 compared to the $189 consensus which is about 55% above the recent price action. The low price target of $145, which was set by both Robert W. Baird and Wedbush, is about 20% above the current price action and may move lower before it moves higher again.
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The results were not bad but the guidance was weak. The company reported $930 million in quarterly earnings for a gain of 11% over last year and it beat the consensus estimate by 500 basis points so there was some core strength. The gain was driven by a 1% increase in recurring revenue aided by an 8% increase in net bookings. Recurring revenue accounted for 63% of the net and helped the company to maintain a very strong margin. On the bottom line, the GAAP $0.95 beat by $0.33 but the core strength is not expected to carry into the new year.
The company’s guidance is what has us worried as it, excluding the impact of Zynga, is expecting revenue in a range below the market consensus and the EPS is worse. EPS is expected in a range of $1.90 to $2.15 compared to the Insidertrades.com consensus target which is calling for more than twice the amount. The mitigating factor is the guidance and consensus may not be comparable due to the pending acquisition.
The Technical Outlook: Take-Two Rebounds, Don’t Buy It
Price action in Take-Two rebounded strongly following the Q4 release but the move lacks conviction. With short interest of 12%, we are viewing this move as short-covering and a possible selling point for bearish traders. Even if the stock is at the bottom, it is still very early in the move and we would expect to see at least 1 if not 2 or more follow-on signals before a true rally began. Until then, we are content to sit back and watch what happens.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Take-Two Interactive Software (TTWO) | $181.97 | +0.3% | N/A | -8.60 | Moderate Buy | $197.58 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
