Investors should buy Take-Two Interactive shares ahead of the release of the "Red Dead Redemption 2" game, according to Bank of America Merrill Lynch.
The firm reiterated its buy rating for Take-Two shares, predicting the gamemaker will report earnings above expectations in its next fiscal year.
Take-Two's "Red Dead Redemption 2" is slated to be released Oct. 26.
"We continue to favor Red Dead for upside this holiday, while our longer-term thesis is unchanged: Take-Two has the biggest runway to benefit from digital shift, [microtransactions] shift, margin expansion and multiple expansion from streaming content deals," analyst Justin Post said in a note to clients Thursday. "We are above guidance and have modeled for 18 [million] units, but given ["Grand Theft Auto 5"] success, eight years of development and consumers' desire for original content, we see upside potential."
Shares of Take-Two was down slightly in late-morning trading Thursday.
Post raised his price target to $151 from $143 for Take-Two shares, representing 11 percent upside to Wednesday's close.
He estimates Take-Two will report fiscal 2020 earnings per share of $5.02 versus the $4.91 Wall Street consensus due to strong "Red Dead Redemption 2" add-on sales and a PC version of the game.
"We see TTWO's titles as well positioned for consumer environment where high-quality hits are getting a disproportionate share of core gamer spending," he said. "TTWO is still attractively priced given best-in-breed development studios and industry leading franchises including GTA, Red Dead, Borderlands, and NBA 2K."
Take-Two shares are up 24 percent this year through Wednesday versus the S&P 500's 9 percent gain.