Bernstein Downgrades Activision Blizzard on Valuation Risk

The brokerage firm can't justify ATVI's stock price with its fundamentals

Bernstein downgraded Activision Blizzard, Inc. (NASDAQ:ATVI) to "underperform" from "market perform," saying, "the market is paying too much on the hope that this is the trough." The brokerage firm went on to say that it "cannot reconcile the current stock price with ATVI's risk-adjusted fundamentals," but raised its price target on the video game stock to $43 from $41 following its recent run higher.

In reaction, Activision Blizzard stock has swung 2.2% lower to trade at $51.80, but is still up almost 24% since its late-May lows south of $42. Longer term, ATVI shares are up roughly 10% year-to-date.

The majority of analysts remain upbeat toward ATVI. Prior to today, 20 brokerages maintained a "buy" or better rating, compared to six that called the stock a "hold." However, the average 12-month price target of $57.03 is a tame 7.8% premium to last night's close.

Options traders are bullish, too. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ATVI stock's 10-day call/put volume ratio of 11.30 ranks in the 100th annual percentile, meaning calls have been bought to open over puts at an accelerated clip.

The weekly 10/11 55-strike call has seen the biggest increase in open interest over this two-week time frame, with nearly 13,000 contracts added. Data from Trade-Alert points to mostly buy-to-open activity at the weekly option, meaning traders are betting on a breakout above $55 by the close next Friday, Oct. 11.