Here are Credit Suisse's top video game stock ideas into earnings

Published Mon, Jul 24 20173:17 PM EDTUpdated Mon, Jul 24 20173:48 PM EDT

Video game stocks have crushed the market this year and a top Wall Street firm predicts the sector's strong performance will continue. Credit Suisse shared its best interactive entertainment picks going into earnings season in a note to clients Monday. Analyst Stephen Ju shared why he is still bullish on the sector long term: "With the June quarter a relative new-release-lull, we do not have material changes due to product changes, but as our focus remains on the three-pronged secular thesis – 1) adoption of console full game downloads 2) adoption of console microtransactions – driving gross profit dollar expansion due to the increase in monetization 3) expansion of the addressable market with online free to play and mobile." Here are the top outperform-rated companies in the industry that Ju recommended and his current price targets. Electronic Arts and Activision Blizzard shares have rallied 42.5 percent and 68.7 percent respectively this year versus the S & P 500's 10.4 percent return. 1) Electronic Arts (EA) Ju initiated his year-end 2018 price target for Electronic Arts at $125, representing 11 percent upside from Friday's close. "We came away from E3 [video game conference] thinking that our 2 million unit volume estimate for Anthem was overly conservative and we raise our projection to ~7.5 million over the life of the title," the analyst wrote. "This does highlight a gradual build of new IP [intellectual property] at EA to what we have previously viewed as an 'embarrassment of riches,' with now 'Star Wars Battlefront,' the upcoming 'Star Wars' action game, as well as IP from new studio Motive all helping to round out the portfolio." The company is slated to report fiscal first-quarter earnings Thursday. 2) Activision Blizzard (ATVI) The analyst started his year-end 2018 price target for Activision Blizzard at $75, representing 23 percent upside from Friday's close. Ju is bullish on Activision Blizzard shares due to the company's "ability to produce and maintain high-quality franchise content, management's execution consistency in on-time content delivery, [and] strong positioning in the long-term video game industry transition from a consumer packaged goods to online." The company is scheduled to report second-quarter earnings on Aug. 3.

A drumline performs at the Electronic Arts EA Play event at E3 in Los Angeles, California.

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"With the June quarter a relative new-release-lull, we do not have material changes due to product changes, but as our focus remains on the three-pronged secular thesis – 1) adoption of console full game downloads 2) adoption of console microtransactions – driving gross profit dollar expansion due to the increase in monetization 3) expansion of the addressable market with online free to play and mobile."

Here are the top outperform-rated companies in the industry that Ju recommended and his current price targets.