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The Ratings Game: Take-Two now has ‘the most attractive growth outlook’ in gaming, analyst says in upgrade

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Take-Two Interactive Software Inc.’s pending acquisition of Zynga Inc. helps give the videogame publisher “the most attractive growth outlook” in the industry, according to an analyst.

MKM Partners analyst Eric Handler upgraded Take-Two’s stock
TTWO
to buy from neutral Friday, writing that the combination of Take-Two’s own intellectual property and the earnings accretion that could come with a successful closing of the Zynga deal creates a nice setup for the shares.

“With the go-shop period for Zynga
ZNGA
having expired, there are likely no other obstacles that could derail this acquisition,” he wrote. “We very much like the added scale provided by Zynga as well as the expertise and capabilities it brings to Take-Two’s undermonetized/under-utilized mobile games portfolio.”

Handler estimates that Take-Two could see 17% to 30% earnings accretion from the Zynga deal in fiscal 2024. While he’s not including possible revenue synergies in his model, he anticipates that these “could start becoming evident in FY25.”

As for Take-Two’s existing business, Handler is upbeat about the company’s internal portfolio and thinks that investors could see increasing visibility into the pipeline going forward.

While a new iteration of the “Grand Theft Auto” title is the “largest lever” for Take-Two, Handler sees good opportunities with other sequels, too. “Bioshock,” “Civilization,” “Borderlands,” “Mafia,” and “XCOM” represent “other high-quality non-annualized sequels” that could help Take-Two, in his view.

Read: The most lucrative videogame in history is getting a sequel

There is also potential in new titles. “Management has not publicly commented on this news but with reports of a soccer game being released in late 2022, an open-world racing game slated for 2023, and an unknown sports title (NFL???) also in the works, a formal announcement seems to be a matter of when, not if,” Handler wrote.

He has a $200 stock price target on Take-Two. The stock is off 0.3% in Friday’s trading. It has lost 4.6% over the past three months as the S&P 500
SPX
has declined 5.3%.

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