Activision rises as multiple analysts upgrade, citing favorable risk-reward
Rich Polk

Activision Blizzard (NASDAQ:ATVI) shares rose more than 1% on Monday as multiple investment banks upgraded the video game software maker, pointing out that the stock is discounting both the potential acquisition by Microsoft (NASDAQ:MSFT) and an overall improvement in the business.
Wells Fargo upgraded analyst Brian Fitzgerald moved his rating on Activision (ATVI) to overweight from equal weight and kept the $95 price target, noting that even though the antitrust landscape across the globe remains "uncertain," the stock does not reflect the company's potential.
"We believe the market is likely undervaluing the company due to: a failure to consider the impact of a $3B breakup fee; an under-appreciation of the company's prospects as a standalone video game publisher, and quite possibly; a miscalculation of the deal's chances at getting through antitrust," Fitzgerald wrote in a note to clients.
Fitzgerald added that if the deal does not close, Activision (ATVI) is set to receive a $3B breakup fee and even at a conservative 13.5 multiple to consensus 2023 EBIT estimates, the stock is worth $76 per share. 
"From our conversations with event-driven and M&A arb traders, we believe most are using $64-72 as a breakup price, at which the current price of ATVI ($73.47) implies a 6-31% chance that the deal closes," the analyst added. 
Fitzgerald also pointed out Activision's (ATVI) "record-breaking" Call of Duty launch, which generated $1B in sell-through in the first 10 days, as well as strong engagement in Overwatch 2 and continued strength in its mobile division.
Truist analyst Matthew Thornton also upgraded Activision (ATVI), moving his rating to buy from hold, noting that even without the $69B deal from Microsoft (MSFT), the company has improved its fundamentals, as well as the fact it could have between $12B and $13B in net cash that could be used for buybacks or other purposes, such as deals. 
"Activision should have a big 2023 with [Call of Duty] in a very healthy place (record recent MW2 launch, plus recent Warzone 2.0, plus upcoming Warzone Mobile in 2023), with [World of Warcraft] in a healthy place (recent Classic content, upcoming Dragonflight expansion), with dormant Overwatch and Diablo franchises being stood-up again (with Overwatch 2, including PvE in 2023, and Diablo IV in 2023), with Blizzard mobile in a healthy place (Diablo Immortal plus Warcraft Arclight Rumble, we assume in late 2023, and we believe more in the pipeline beyond 2023), and King continuing to be solid/consistent," Thornton wrote in a note to clients.
In addition to the Activision upgrade, Thornton maintained his buy ratings on Electronic Arts (EA) and Take-Two Interactive (TTWO) and his hold rating on Roblox (RBLX).
Morgan Stanley analyst Matthew Cost also upgraded Activision (ATVI), citing the fact that the firm has become "incrementally bullish" on the company's position as a game publisher across multiple platforms and genres.
"While it is challenging to assess the likelihood that [Microsoft's] proposed acquisition receive regulatory approvals, we believe the risk reward is compelling on a fully standalone basis...with a call option of $95 in cash per share, if and when the [Microsoft] deal closes," Cost wrote in a note to clients.
Last week it was reported that the Federal Trade Commission is likely to file an antitrust lawsuit to block Microsoft's (MSFT) $69B acquisition of Activision Blizzard (ATVI).
Analysts are mostly positive on Activision (ATVI). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts also rate it a BUY. On the other hand, Seeking Alpha's quant system, which consistently beats the market, rates ATVI a HOLD.