Electronic Arts Inc. (NASDAQ:EA) surged as high as $69.72 per share or 2.51% earlier today following the release of a note by UBS which expressed optimism about the video gaming giant. In the note, analyst Eric J. Sheridan upgraded EA’s rating to ‘Buy’ from ‘Neutral’ and greatly increased the stock’s price target to $80 from $50. The stock is currently up 1.62% as of writing. Sheridan notes that the digital entertainment firm’s title slate for fiscal year 2016 is expected to be strong, buoyed by the upcoming Star Wars: Battlefront title, which the analyst believes will sell between 12 and 14 million copies, far more than EA’s own estimates of 9 to 10 million. Furthermore, EA will also benefit from the continued shift towards digital sales, through its better traction in mobile gaming, and sustained cost discipline. In the mobile gaming sector, Sheridan notes that EA now has more than 165 million monthly active users as the segment now contributes over 12% of the firm’s trailing 12-month non-GAAP revenue. The UBS analyst also notes that improved Free Cash Flow could possibly be used by the gaming behemoth to support greater debt for share buybacks.
The positivity about Electronic Arts Inc. (NASDAQ:EA) from UBS appears to be shared by hedge funds tracked by Insider Monkey. By the end of the first three months of the year, a total of 41 of the hedge funds tracked by us were bullish in this stock, a 3% increase over the close of the fourth quarter. More noteworthy is the 55.26% increase in the value of their collective holdings, to $1.57 billion by the end of the first quarter from $1.01 billion one quarter previous. This is a significant increase by those long in the stock, as the share price increase of the firm was just 25.1% in the first quarter.
We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks returned 135% since then and outperformed the S&P 500 Index by 80 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment. Plus, we also don’t like paying huge fees.
We also pay attention to insider trades to see if those who are positioned within companies are also betting on their own companies’ shares. For EA, there were no purchases of shares by insiders in the first half of the year. There were, however, sales. The most recent sales of shares by insiders were by COO Peter Moore on July 6 and CEO Andrew Wilson and CFO Blake Jorgensen on July 1. Moore sold 8,000 shares of the firm, while Wilson and Jorgensen sold 8,000 and 3,909 shares respectively.
Keeping this in mind, let’s review the fresh hedge fund action regarding Electronic Arts Inc.
What does the smart money think about Electronic Arts Inc. (NASDAQ:EA)?
According to hedge fund intelligence website Insider Monkey, Philippe Laffont‘s Coatue Management had the largest position in Electronic Arts Inc. (NASDAQ:EA), worth close to $385.5 million in 6.55 million shares, comprising 3.7% of its total 13F portfolio. The second-most bullish hedge fund manager is David E. Shaw of D.E. Shaw & Co., L.P., holding a $223.3 million position of 3.8 million shares; the fund had 0.3% of its 13F portfolio invested in the stock. Other peers that are bullish contain Cliff Asness’ AQR Capital Management, Joel Greenblatt’s Gotham Asset Management, and Ken Griffin’s Citadel Investment Group.
As expected, key money managers were leading the bulls’ herd. JAT Capital Management, headed by John Thaler, assembled the most valuable new position in Electronic Arts Inc. (NASDAQ:EA). JAT Capital Management had $10.2 million invested in the company at the end of the quarter in 173,495 shares. David S. Winter and David J. Millstone’s 40 North Management also held a new $3.1 million position in the stock by the end of the quarter, buying 51,917 shares. The other funds with new positions in the stock included Thomas E. Claugus’ GMT Capital, Paul Tudor Jones’ Tudor Investment Corp, and Jacob Gottlieb’s Visium Asset Management.
Since hedge funds and UBS are bullish on Electronic Arts Inc. (NASDAQ:EA), the gaming giant offers not only fun, but potentially good returns for investors at the moment. As consumer spending increases, the gaming sector should be one of the biggest beneficiaries, and EA remains one its top players. We recommend a buy of EA.