Should I invest in Activision Blizzard shares after BMO Capital raised its price target to $116?

Activision Blizzard, Inc. (NASDAQ: ATVI) shares are advancing this Thursday, and the technical picture implies that the price could reach $100 resistance this May. Activision Blizzard continues to expand its business, but this company is not undervalued at the current stock price.

Fundamental analysis: Activision Blizzard trades at more than twenty times 2020 EBITDA

Activision Blizzard shares continue to be supported after the company reported better than expected first-quarter results in the first trading week of May. Total revenue has increased by 36.2% Y/Y to $2.07 billion, while the GAAP EPS was $0.79 (beats by $0.14).

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The company achieved revenue growth across all business segments; Activision segment revenue has risen 72%, Blizzard revenue has increased by 7%, and King segment revenue has increased by 22%. Operating cash flow was $844 million compared with $148 million for the first quarter of 2020.

Activision Blizzard finished this quarter with 435 million monthly active users (MAUs), and the company began the second quarter in a strong position. Positive information is that global video game sales rose 30% during the first quarter, and according to estimates, ATVI could have another strong quarter.

BMO Capital has raised its price target to $116 from $104 on Activision Blizzard after the first-quarter earnings report as it sees this company well-positioned for success in 2021 and, more importantly, beyond.

“Call of Duty and World of Warcraft offers multiple proof points that re-masters and multiple free-to-play entry points create a larger, more sustainable franchise ecosystem. With the broadest library of content in gaming available to activate, we are confident in outperformance over the long term,” BMO Capital reported.

The current dividend yield stands around 0.5%, and it is important to mention that the board of directors announced this year a stock repurchase program of up to $4B of its outstanding common stock during the period of two years.

Activision Blizzard is a stable company with a good position in the market, but with a market capitalization of $73 billion, we can notice that this stock is not undervalued. Activision Blizzard trades at more than twenty times 2020 EBITDA, the book value per share is less than $20, and the current risk/reward ratio is not good enough for “value” investors.

Technical analysis: $100 represents the first resistance level

Activision Blizzard shares are advancing this Thursday, and for now, the positive trend remains intact. If the price jumps above $100, the next target could be around $110, but if the price falls below the $90 support level, it would be a firm “sell” signal.

Summary

Activision Blizzard reported better than expected first-quarter results this month, and BMO Capital has raised its price target to $116 from $104. Activision Blizzard is a stable company with a good position in the market, but the current risk/reward ratio is not good enough for “value” investors.