Take Two Interactive Stock Upgraded Prior to Red Dead Redemption 2 Release

Apr 30, 2018 17:59 EDT

Take Two Interactive (NASDAQ:TTWO) was the fortunate recipient of a stock price upgrade from the firm, Wedbush. Firms like Wedbush often will issue a "price target" and rating like "buy" or "hold" based on the merits of the company in question. Take Two, the third largest publically traded video game company in America, was upgraded early Monday morning with a price target hike from $98 to $125.

Red Dead Redemption to power Take Two Profits to new levels

The analyst is counting on the fact that Red Dead Redemption 2, due to be released later this year in October, will be massively popular with gamers across the world. The first RDE sold over 15 million copies and was generally very well received by critics and gamers alike.

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Take Two, founded in 1993 and based in NYC, is well known for the most successful video game franchise in history, Grand Theft Auto, but Red Dead Redemption is looking to be the company's #2 IP.

Wedbush also cited the large project, currently unknown, in development at Take Two. They speculate this is most likely the highly anticipated sequel, Borderlands 3.

Together these popular franchise installments should provide a huge boost to TTI's revenue and earnings, which is what today's stock upgrade is based on.

Wedbush estimates that TTI will report $5 earnings per share by the end of the year. Earnings per share, or "EPS" is basically one of the best indicators of a company's profitability. Its calculated as all net income (money from sales minus most expenses) divided by the number of shares a company has out in the world. The firm cites the industry standard of video game publishers trading price hovering around 20-25 times EPS.

TTI was trading at about $99 at the time of the upgrade and if you factor out Take Two's $11 in cash per share then you can calculate that TTI is trading at about 17.5x of its EPS, a far cry from the 20-25x other publishers trade at.

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By that logic, if TTI does indeed bring home $5 EPS then Wedbush argues they would be worth about $125 per share, which puts the stock as undervalued.

Take Two will report earnings May 16th, and stay tuned to this space for our coverage.