Bank of America has downgraded Take-Two Interactive Software Inc (NASDAQ:TTWO) to 'Neutral' from 'Buy', citing a 20% cut in their FY25 top-line forecast due to concerns about the launch date of GTA 6.
The contrarian call comes as the bank expects consensus estimates for FY25 to fall significantly before August 2024, challenging the assumption of a GTA 6 launch by March 2025.
The bank highlights TTWO as a consensus long without strong upside catalysts through August 2024, with not all investors willing to extend the duration beyond 15 months. According to analysts, valuation is no longer considered cheap, and the stock is anticipated to tread water through 2024.
“Based on investor inquiry patterns, participation has broadened meaningfully since the stock bottomed a year ago,” analysts wrote. “We expect further broadening of participation into the launch, which dampens downside price risk, but we do not see significant further upside potential for now.”
Bank of America suggests that a delay in the GTA 6 launch or a cut in FY25 guidance could lead to a revisiting of the stock's outlook.
The worst-case scenario for the GTA 6 launch date, now indicated as 2025, may turn into the best case, according to analysts. Rockstar Games, the developer, left the launch timeline open to interpretation, while TTWO management has signaled a 1CQ25 launch in its FY25 guidance.
But BofA analysts are skeptical about the state of GTA 6 development based on the debut trailer and leaked footage, pointing out the lack of elements indicating advanced testing and the absence of mention of a PC version launching in 2025.
Despite the downgrade, Bank of America is maintaining a price target of $170, based on 20x the average of their FY25 and FY26 EPS estimates.