Good Visibility Into Earnings Stream of Activision Blizzard, Inc. (NASDAQ:ATVI)

September 14, 2016

Shayne M. John, Principal at Decatur Capital Management, says Activision Blizzard, Inc. (NASDAQ:ATVI) is everything he likes in an earnings stock due to the company’s strong portfolio of video game I.P.

Activision Blizzard is the world’s largest video game publisher, as you know. Everyone knows it for “Call of Duty,” but since the start of this summer, the earnings cycle catalyst has been a game called “Overwatch.” It’s a little different from “Call of Duty” in that “Overwatch” is predominantly a PC download game. This makes it more profitable on a per-unit basis than most of the other Activision games because, when you download it on a PC, you remove a large slice of ATVI’s distribution costs.

“Overwatch” is what’s really pushed the stock up from $35 to $41 over the last few months. We think that ATVI has a very strong portfolio of video game I.P., and it could easily be a $50 stock over the next 18 months. “Call of Duty” is one of the strongest titles out there, and even though it’s gone through a number of iterations, it hasn’t lost its attraction to the gamer community.

ATVI has very good management. They’ve done a very good job, ever since they purchased the company back from Vivendi (EPA:VIV), in turning out successful hits. The balance sheet is very good. They have a ton of cash, and they are paying down debt. Debt to EBITDA is about 1.2 times. So ATVI’s got everything that we like in an earnings cycle stock. Earnings estimates are going up with consistent earnings surprises, and you have very good visibility into the earning stream over the next 21 to 24 months.