Why Take-Two Interactive Stock Is Up By 4% Today

Take-Two Interactive Stock Gains Ground After Analyst Upgrade

Shares of Take-Two Interactive moved higher after BMO Capital Markets upgraded the stock after the sell-off which was triggered by Zynga acquisition.

Back on Monday, the stock fell towards the $140 level after the company announced that it will purchase Zynga for $9.86 per share ($3.50 in cash and $6.36 in TTWO stock), implying an enterprise value of $12.7 billion.

Take-Two stated that the transaction would create one of the largest publicly traded interactive entertainment companies in the world and promised to deliver $100 million of annual cost synergies within the first two years after closing the deal.

As usual in such cases, this transaction is subject to approval of both companies’ shareholders.

The market remains skeptical about this transaction as Take-Two has been previously focused on console/PC games while Zynga is focused on mobile gaming. In addition, the deal implied a significant premium for Zynga as its stock traded near the $6 level before the transaction was announced.

What’s Next For Take-Two Interactive Stock?

Current analyst estimates imply that Take-Two Interactive will report earnings of $6.7 per share in the next fiscal year, so the stock is trading at 23 forward P/E. However, the market will look forward and try to evaluate the company’s performance after Zynga acquisition is completed.

For the next year, Zynga was expected to report earnings of $0.41 per share, so Take-Two Interactive bought it at roughly 24 forward P/E. This is not cheap, but it also not too expensive, and the deal looks fairly valued, although it should be noted that Zynga stock has been moving lower for many months.

It looks that speculative traders may provide some support to Take-Two Interactive stock in the upcoming trading sessions as as the market’s original reaction to the deal was very pessimistic, and the stock’s RSI moved into oversold levels.

In the first half of 2022, the fate of Take-Two Interactive stock will depend on general video game market conditions while traders would wait for the approval of the Zynga deal.

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