Electronic Arts Inc. (NASDAQ:EA) is down 0.8% to trade at $111.00 this morning, after Morgan Stanley downgraded the video game stock to "equal weight" from "overweight," while issuing a price-target cut to $120 from $126. Morgan Stanley cited weak digital revenue for its "Star Wars" game, as well as the company's conservative stance on upcoming titles, as reasons for the downgrade. SunTrust Robinson chimed in with a price-target cut of its own, to $130 from $133.
Since touching a record high of $122.79 on Aug. 31, the equity has given back 10%, and has posted only three winning weeks since early October. Any attempts at a renewed breakout have been thwarted by the shares' 100-day moving average. Furthermore, EA stock recently formed a death cross with its 50- and 200-day trendlines.
Nevertheless, most analysts remain optimistic. Of the 19 brokerages covering EA, 16 rate the shares a "buy" or "strong buy." In addition, EA's average 12-month price target of $128.52 represents a 16% premium from the stock's current perch, and is in uncharted territory for the shares. This implies that more downgrades and price-target cuts could be on the horizon.
Options traders are also confident. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), EA boasts a 10-day call/put volume ratio of 1.60. This ratio is in the 67th percentile of its annual range, pointing to a healthier-than-usual appetite for long calls over puts lately. Continued technical struggles could lead to an unwinding of these bullish bets.