Activision Blizzard Inc Valuation – April 2019 #ATVI

Company Profile (excerpt from Reuters): Activision Blizzard, Inc., incorporated on February 17, 2000, is a developer and publisher of interactive entertainment content and services. The Company develops and distributes content and services across various gaming platforms, including video game consoles, personal computers (PC) and mobile devices. The Company’s segments include Activision Publishing, Inc. (Activision), Blizzard Entertainment, Inc. (Blizzard), King Digital Entertainment (King) and Other. The Company also develops products spanning other genres, including first-person action, action/adventure, role-playing, simulation and strategy. It provides various forms of product support. The Company sells games through both retail and digital online channels.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ATVI – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $35,920,667,413 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.31 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 110.62% Pass
6. Moderate PEmg Ratio PEmg < 20 28.80 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.19 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.31 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.77 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.63
MG Growth Estimate 7.58%
MG Value $38.62
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $23.66
MG Value based on 0% Growth $13.87
Market Implied Growth Rate 10.15%
Current Price $47.00
% of Intrinsic Value 121.69%

Activision Blizzard, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.08 in 2015 to an estimated $1.63 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.15% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Activision Blizzard, Inc. revealed the company was trading above its Graham Number of $26.2. The company pays a dividend of $0.34 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 28.8, which was below the industry average of 29.7, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.48.

Activision Blizzard, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.48
Graham Number $26.20
PEmg 28.80
Current Ratio 2.31
PB Ratio 3.19
Current Dividend $0.34
Dividend Yield 0.72%
Number of Consecutive Years of Dividend Growth 9

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $6,106,000,000
Total Current Liabilities $2,642,000,000
Long-Term Debt $2,671,000,000
Total Assets $17,835,000,000
Intangible Assets $10,562,000,000
Total Liabilities $6,478,000,000
Shares Outstanding (Diluted Average) 771,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.05
Dec2018 $2.35
Dec2017 $0.36
Dec2016 $1.28
Dec2015 $1.19
Dec2014 $1.13
Dec2013 $0.95
Dec2012 $1.01
Dec2011 $0.92
Dec2010 $0.33
Dec2009 $0.09
Mar2008 $0.55
Mar2007 $0.14
Mar2006 $0.07
Mar2005 $0.18
Mar2004 $0.08
Mar2003 $0.08
Mar2002 $0.11
Mar2001 $0.06
Mar2000 -$0.12
Mar1999 $0.02

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.63
Dec2018 $1.37
Dec2017 $0.91
Dec2016 $1.16
Dec2015 $1.08
Dec2014 $0.98
Dec2013 $0.82
Dec2012 $0.70
Dec2011 $0.50
Dec2010 $0.27
Dec2009 $0.23
Mar2008 $0.26
Mar2007 $0.12
Mar2006 $0.11
Mar2005 $0.12
Mar2004 $0.07
Mar2003 $0.05

Recommended Reading:

Other ModernGraham posts about the company

Activision Blizzard Inc Valuation – June 2018 $ATVI

Other ModernGraham posts about related companies

Hasbro Inc Valuation – January 2019 $HAS
Electronic Arts Inc Valuation – November 2018 $EA
Activision Blizzard Inc Valuation – June 2018 $ATVI
Mattel Inc Valuation – June 2018 $MAT
Hasbro Inc Valuation – March 2018 $HAS
Electronic Arts Inc Valuation – February 2018 $EA
Mattel Inc. Valuation – June 2017 $MAT
Hasbro Inc Valuation – July 2016 $HAS
Electronic Arts Inc Valuation – May 2016 $EA
Mattel Inc Valuation – January 2016 Update $MAT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Activision Blizzard Inc Valuation – June 2018 $ATVI

Company Profile (excerpt from Reuters): Activision Blizzard, Inc., incorporated on February 17, 2000, is a developer and publisher of interactive entertainment content and services. The Company develops and distributes content and services across various gaming platforms, including video game consoles, personal computers (PC) and mobile devices. The Company’s segments include Activision Publishing, Inc. (Activision), Blizzard Entertainment, Inc. (Blizzard), King Digital Entertainment (King) and Other. The Company also develops products spanning other genres, including first-person action, action/adventure, role-playing, simulation and strategy. It provides various forms of product support. The Company sells games through both retail and digital online channels.

ATVI Chart

ATVI data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ATVI – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $59,317,089,612 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.19 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 208.96% Pass
6. Moderate PEmg Ratio PEmg < 20 53.55 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.96 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.19 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.26 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.42
MG Growth Estimate 6.80%
MG Value $31.36
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $20.58
MG Value based on 0% Growth $12.06
Market Implied Growth Rate 22.53%
Current Price $76.01
% of Intrinsic Value 242.35%

Activision Blizzard, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.98 in 2014 to an estimated $1.42 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 22.53% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Activision Blizzard, Inc. revealed the company was trading above its Graham Number of $26.51. The company pays a dividend of $0.3 per share, for a yield of 0.4% Its PEmg (price over earnings per share – ModernGraham) was 53.55, which was above the industry average of 28.13. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.82.

Activision Blizzard, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$2.82
Graham Number $26.51
PEmg 53.55
Current Ratio 2.19
PB Ratio 5.96
Current Dividend $0.30
Dividend Yield 0.39%
Number of Consecutive Years of Dividend Growth 8

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $6,410,000,000
Total Current Liabilities $2,927,000,000
Long-Term Debt $4,392,000,000
Total Assets $18,397,000,000
Intangible Assets $10,843,000,000
Total Liabilities $8,578,000,000
Shares Outstanding (Diluted Average) 770,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.50
Dec2017 $0.36
Dec2016 $1.28
Dec2015 $1.19
Dec2014 $1.13
Dec2013 $0.95
Dec2012 $1.01
Dec2011 $0.92
Dec2010 $0.33
Dec2009 $0.09
Mar2008 $0.55
Mar2007 $0.14
Mar2006 $0.07
Mar2005 $0.25
Mar2004 $0.15
Mar2003 $0.12
Mar2002 $0.11
Mar2001 $0.06
Mar2000 -$0.12
Mar1999 $0.05
Mar1998 $0.02

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.42
Dec2017 $0.91
Dec2016 $1.16
Dec2015 $1.08
Dec2014 $0.98
Dec2013 $0.82
Dec2012 $0.70
Dec2011 $0.50
Dec2010 $0.27
Dec2009 $0.23
Mar2008 $0.28
Mar2007 $0.14
Mar2006 $0.14
Mar2005 $0.16
Mar2004 $0.10
Mar2003 $0.07
Mar2002 $0.04

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Mattel Inc Valuation – June 2018 $MAT
Hasbro Inc Valuation – March 2018 $HAS
Electronic Arts Inc Valuation – February 2018 $EA
Mattel Inc. Valuation – June 2017 $MAT
Hasbro Inc Valuation – July 2016 $HAS
Electronic Arts Inc Valuation – May 2016 $EA
Mattel Inc Valuation – January 2016 Update $MAT
Hasbro Inc Valuation – January 2016 Update $HAS
Mattel Inc. Analysis – September 2015 Update $MAT
Hasbro Inc. Analysis – August 2015 Update $HAS

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Mattel Inc Valuation – March 2019 #MAT

Company Profile (excerpt from Reuters): Mattel, Inc., incorporated on March 6, 1968, designs, manufactures, and markets a range of toy products around the world, which are sold to its customers and directly to consumers. The Company’s segments are North America, which consists of the United States and Canada; International, and American Girl. The Company’s portfolio of brands and products are grouped into approximately four brand categories, including Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MAT – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $4,472,878,134 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.88 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -182.75% Fail
6. Moderate PEmg Ratio PEmg < 20 -12.70 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.69 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.88 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.59 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$1.02
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$14.79
MG Value based on 0% Growth -$8.67
Market Implied Growth Rate -10.60%
Current Price $12.95
% of Intrinsic Value N/A

Mattel Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.7 in 2015 to an estimated $-1.02 for 2019. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Mattel Inc revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -12.7, which was below the industry average of 28.42, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-6.43.

Mattel Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$6.43
Graham Number $0.00
PEmg -12.70
Current Ratio 1.88
PB Ratio 6.69
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,352,440,000
Total Current Liabilities $1,252,608,000
Long-Term Debt $2,851,723,000
Total Assets $5,243,465,000
Intangible Assets $1,973,952,000
Total Liabilities $4,574,000,000
Shares Outstanding (Diluted Average) 345,726,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$0.57
Dec2018 -$1.54
Dec2017 -$3.07
Dec2016 $0.92
Dec2015 $1.08
Dec2014 $1.45
Dec2013 $2.58
Dec2012 $2.22
Dec2011 $2.18
Dec2010 $1.86
Dec2009 $1.45
Dec2008 $1.05
Dec2007 $1.54
Dec2006 $1.53
Dec2005 $1.01
Dec2004 $1.35
Dec2003 $1.22
Dec2002 $0.52
Dec2001 $0.68
Dec2000 -$1.01
Dec1999 -$0.21

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$1.02
Dec2018 -$0.91
Dec2017 -$0.20
Dec2016 $1.38
Dec2015 $1.70
Dec2014 $2.03
Dec2013 $2.23
Dec2012 $1.96
Dec2011 $1.76
Dec2010 $1.52
Dec2009 $1.34
Dec2008 $1.29
Dec2007 $1.38
Dec2006 $1.25
Dec2005 $1.06
Dec2004 $0.90
Dec2003 $0.53

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Mattel Inc. Valuation – June 2017 $MAT
Mattel Inc Valuation – January 2016 Update $MAT
Mattel Inc. Analysis – September 2015 Update $MAT
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Other ModernGraham posts about related companies

Hasbro Inc Valuation – January 2019 $HAS
Electronic Arts Inc Valuation – November 2018 $EA
Activision Blizzard Inc Valuation – June 2018 $ATVI
Mattel Inc Valuation – June 2018 $MAT
Hasbro Inc Valuation – March 2018 $HAS
Electronic Arts Inc Valuation – February 2018 $EA
Mattel Inc. Valuation – June 2017 $MAT
Hasbro Inc Valuation – July 2016 $HAS
Electronic Arts Inc Valuation – May 2016 $EA
Mattel Inc Valuation – January 2016 Update $MAT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Hasbro Inc Valuation – January 2019 $HAS

Company Profile (excerpt from Reuters): Hasbro, Inc. (Hasbro), incorporated on January 8, 1926, is a play and entertainment company. The Company’s operating segments include the U.S. and Canada, International, and Entertainment and Licensing. From toys and games to content development, including television programming, motion pictures, digital gaming and a consumer products licensing program, Hasbro fulfills the fundamental need for play and connection for children and families around the world. The Company’s Hasbro Studios and its film label, Allspark Pictures, create brand-driven storytelling across mediums, including television, film and digital. Its Franchise Brands are LITTLEST PET SHOP, MAGIC: THE GATHERING, MONOPOLY, MY LITTLE PONY, NERF, PLAY-DOH and TRANSFORMERS.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HAS – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,235,121,885 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.42 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 31.22% Fail
6. Moderate PEmg Ratio PEmg < 20 25.99 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.99 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.42 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.91 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.42
MG Growth Estimate 3.90%
MG Value $55.72
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $49.58
MG Value based on 0% Growth $29.06
Market Implied Growth Rate 8.74%
Current Price $88.86
% of Intrinsic Value 159.47%

Hasbro, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.71 in 2014 to an estimated $3.42 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.74% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Hasbro, Inc. revealed the company was trading above its Graham Number of $31.97. The company pays a dividend of $2.22 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 25.99, which was above the industry average of 25.63. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.27.

Hasbro, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.27
Graham Number $31.97
PEmg 25.99
Current Ratio 2.42
PB Ratio 5.99
Current Dividend $2.22
Dividend Yield 2.50%
Number of Consecutive Years of Dividend Growth 4

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $3,192,450,000
Total Current Liabilities $1,321,923,000
Long-Term Debt $1,694,721,000
Total Assets $5,495,329,000
Intangible Assets $1,304,622,000
Total Liabilities $3,608,048,000
Shares Outstanding (Diluted Average) 127,161,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.09
Dec2017 $3.12
Dec2016 $4.34
Dec2015 $3.57
Dec2014 $3.20
Dec2013 $2.17
Dec2012 $2.55
Dec2011 $2.82
Dec2010 $2.74
Dec2009 $2.48
Dec2008 $2.00
Dec2007 $1.97
Dec2006 $1.29
Dec2005 $1.09
Dec2004 $0.96
Dec2003 $0.85
Dec2002 -$0.99
Dec2001 $0.35
Dec2000 -$0.82
Dec1999 $0.93
Dec1998 $1.00

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.42
Dec2017 $3.48
Dec2016 $3.50
Dec2015 $3.01
Dec2014 $2.71
Dec2013 $2.50
Dec2012 $2.61
Dec2011 $2.56
Dec2010 $2.32
Dec2009 $2.00
Dec2008 $1.66
Dec2007 $1.40
Dec2006 $0.96
Dec2005 $0.68
Dec2004 $0.34
Dec2003 $0.04
Dec2002 -$0.21

Recommended Reading:

Other ModernGraham posts about the company

Hasbro Inc Valuation – March 2018 $HAS
Hasbro Inc Valuation – July 2016 $HAS
Hasbro Inc Valuation – January 2016 Update $HAS
Hasbro Inc. Analysis – August 2015 Update $HAS
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Other ModernGraham posts about related companies

Electronic Arts Inc Valuation – November 2018 $EA
Activision Blizzard Inc Valuation – June 2018 $ATVI
Mattel Inc Valuation – June 2018 $MAT
Hasbro Inc Valuation – March 2018 $HAS
Electronic Arts Inc Valuation – February 2018 $EA
Mattel Inc. Valuation – June 2017 $MAT
Hasbro Inc Valuation – July 2016 $HAS
Electronic Arts Inc Valuation – May 2016 $EA
Mattel Inc Valuation – January 2016 Update $MAT
Hasbro Inc Valuation – January 2016 Update $HAS

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Electronic Arts Inc Valuation – November 2018 $EA

Company Profile (excerpt from Reuters): Electronic Arts Inc., incorporated on May 8, 1991, develops, markets, publishes and distributes games, content and services that can be played by consumers on a range of platforms, which include consoles, personal computers (PCs), mobile phones and tablets. The Company’s games and services are based on a portfolio of intellectual property that includes established brands, such as FIFA, Madden NFL, Star Wars, Battlefield, the Sims and Need for Speed. The Company markets and sells its games and services through retail channels and through digital distribution channels.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of EA – November 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $25,674,893,266 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.52 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -468.40% Fail
6. Moderate PEmg Ratio PEmg < 20 25.67 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.91 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.52 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.24 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.32
MG Growth Estimate 15.00%
MG Value $127.67
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $48.08
MG Value based on 0% Growth $28.19
Market Implied Growth Rate 8.58%
Current Price $85.12
% of Intrinsic Value 66.67%

Electronic Arts Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.94 in 2015 to an estimated $3.32 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.58% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Electronic Arts Inc. revealed the company was trading above its Graham Number of $34.34. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 25.67, which was below the industry average of 30.67, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $8.7.

Electronic Arts Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $8.70
Graham Number $34.34
PEmg 25.67
Current Ratio 3.52
PB Ratio 4.91
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $5,803,000,000
Total Current Liabilities $1,649,000,000
Long-Term Debt $993,000,000
Total Assets $8,450,000,000
Intangible Assets $1,994,000,000
Total Liabilities $3,133,000,000
Shares Outstanding (Diluted Average) 307,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.49
Mar2018 $3.34
Mar2017 $3.08
Mar2016 $3.50
Mar2015 $2.69
Mar2014 $0.03
Mar2013 $0.31
Mar2012 $0.23
Mar2011 -$0.84
Mar2010 -$2.08
Mar2009 -$3.40
Mar2008 -$1.45
Mar2007 $0.24
Mar2006 $0.75
Mar2005 $1.59
Mar2004 $1.87
Mar2003 $1.08
Mar2002 $0.36
Mar2001 -$0.04
Mar2000 $0.44
Mar1999 $0.29

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.32
Mar2018 $3.00
Mar2017 $2.52
Mar2016 $1.95
Mar2015 $0.94
Mar2014 -$0.11
Mar2013 -$0.51
Mar2012 -$1.11
Mar2011 -$1.69
Mar2010 -$1.81
Mar2009 -$1.27
Mar2008 $0.07
Mar2007 $0.92
Mar2006 $1.22
Mar2005 $1.29
Mar2004 $1.01
Mar2003 $0.52

Recommended Reading:

Other ModernGraham posts about the company

Electronic Arts Inc Valuation – February 2018 $EA
10 Best Stocks For Value Investors This Week – 5/21/16
Electronic Arts Inc Valuation – May 2016 $EA
58 Companies in the Spotlight This Week – 1/31/15
Electronic Arts Inc. Annual Valuation – 2015 $EA

Other ModernGraham posts about related companies

Activision Blizzard Inc Valuation – June 2018 $ATVI
Mattel Inc Valuation – June 2018 $MAT
Hasbro Inc Valuation – March 2018 $HAS
Electronic Arts Inc Valuation – February 2018 $EA
Mattel Inc. Valuation – June 2017 $MAT
Hasbro Inc Valuation – July 2016 $HAS
Electronic Arts Inc Valuation – May 2016 $EA
Mattel Inc Valuation – January 2016 Update $MAT
Hasbro Inc Valuation – January 2016 Update $HAS
Mattel Inc. Analysis – September 2015 Update $MAT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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