Activision upgraded to outperform at Baird on Microsoft deal, product launches
Rich Polk


Activision (NASDAQ:ATVI) was upgraded to outperform at Baird, at least partly as its planned $69 billion sale to Microsoft (NASDAQ:MSFT) is expected to close next year.
"Following the strong launch of Call of Duty MWII, we also have more confidence in product development at the company in the face of meaningful disruption, and that the warm response may also reflect pent-up demand for new video games," Baird analysts including Colin Sebastian wrote in a note on Tuesday.

Cowen argues that ATVI should trade at a 20% premium to comparable companies, which implies roughly 20x P/E in a standalone case, or $78/share, up from $74 currently. Activision's (ATVI) PT was set at $95, the price of its sale to Microsoft (MSFT).
A downside scenario of lower earnings and multiples could lead to a possible "negative downside" scenario of about $55/share, though this appears unlikely, according to Cowen. If the ATVI sale is postponed or terminated, the shares would likely trade down initially, but may recover as Wall Street "more fully recognizes" 2023 and 2024 earnings potential.
Last Tuesday, Activision (ATVI) was upgraded by MKM as the firm said the stock was "severely discounting" fundamentals.