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Zynga to rally 15% on a mobile gaming turnaround, analyst says

  • Piper Jaffray recommends Zynga shares, saying the new management team will improve its financial results.
  • The firm raises its Zynga price target to $4 from $3, representing 15 percent upside from Friday's close.
Zynga headquarters in San Francisco.
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Zynga headquarters in San Francisco.

Investors should buy Zynga shares because the company's new management team will improve its financial results, according to Piper Jaffray, which raised its rating on mobile gaming company to overweight from neutral.

"We have confidence in management as most of the key players have come out of Electronic Arts and are following the same turnaround playbook that EA successfully implemented," analyst Michael Olson wrote in a note to clients Tuesday. "2017 will be a year of monetizing existing games through live services, while continuing to right-size expenses."

Olson raised his Zynga price target to $4 from $3, representing 15 percent upside from Friday's close.

The analyst cited how most of Zynga's top executives recently came from Electronic Arts, including the CEO, CFO, COO and president of publishing. He noted how this team was responsible for turnaround for EA's mobile gaming, which led to 12 percent annual sales growth from 2013 to 2015.

Frank Gibeau was hired as Zynga CEO in March 2016 and has brought in three additional EA managers: Gerard Griffin as CFO, Matt Bromberg as COO and Bernard Kim as president of publishing.

"Management has suggested there is an opportunity to drive higher player engagement and monetization from existing titles, creating ongoing 'live services," Olson wrote. "As a result, Zynga has no plans to enter new genres, but will focus resources on existing titles, with an occasional new game in currently served categories."

— CNBC's Michael Bloom contributed to this story.