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Buy EA on the dip because 'Fortnite' is less of a risk for game maker: JP Morgan

  • J.P. Morgan initiates coverage of Electronic Arts shares with an overweight rating, predicting the company will add "battle royale" modes to its games.
  • "We believe EA should perform better than peers in this crowded release slate given its strong, irreplaceable sports franchises that are very consistent performers each year," the firm's analyst writes.
Fortnite game still image
Source: Fortnite
Fortnite game still image

The surging popularity of Epic Games' "Fortnite" will not significantly affect Electronic Arts' titles, according to one Wall Street firm.

J.P. Morgan initiated coverage of Electronic Arts shares with an overweight rating, predicting the company will add "battle royale" modes to its games.

"We believe investors are focused on the financial impact of PUBG/Fortnite on major publishers following the rapid rise of battle royale over the past year," analyst Alexia Quadrani wrote in a note to clients Tuesday. "We expect strong competition in the 2018 release slate with additional competition from the ramping Fortnite and battle royale style of game play. We believe EA should perform better than peers in this crowded release slate given its strong, irreplaceable sports franchises that are very consistent performers each year."

Epic Games introduced the free-to-play "battle royale" mode for "Fortnite" on computers and gaming consoles in September. This mode allows up to 100 online players to violently battle each other to the death until only one player survives. The company revealed in January that the game has been played by more than 45 million people worldwide. It is also consistently the most streamed game on Twitch.

EA shares declined 8 percent since March 16 through Monday versus the S&P 500's 4 percent drop, partly due to investor concerns that "Fortnite" will cannibalize its sales.

Quadrani started her EA price target at $150, representing 27 percent upside from Monday's close.

The analyst said EA has "less risk" from the popularity of "Fortnite" due to its captive sports franchise audience and smaller mobile business. She also predicts the company will release "battle royale" game modes in its "Battlefield" and "Anthem" games later in EA's fiscal 2019.

"Fortnite's rise may ultimately benefit the video game industry as it could add more casual players and expand the overall pie to include more female and younger skewing demos," she wrote. "As the major game publishers implement the battle royale game mode into their own titles or launch new games over time that are fully focused on the genre, more casual gamers' familiarity with the format could increase the player universe for these major publishers."