Electronic Arts Inc.: History of Beats May Not Help EA

InvestorPlace InvestorPlace - Stock Market News, Stock Advice & Trading Tips

NASDAQ constituent and gaming outfit Electronic Arts Inc. ( EA ) reports earnings Tuesday night. But in front of the release, are there clues as to how investors will react in EA stock?

Electronic Arts, EA, Madden

Let's take a look at EA's recent quarterly announcements, the EA stock chart and what, if anything, the options market are estimating in front of the earnings report.

EA Stock Earnings Picture

In front of Tuesday night's Q4 earnings release, 19 analysts are forecasting profits of 43 cents per share of EA stock. Views range from 38 cents to 50 cents.

The current consensus estimate would be an increase of 10.3% compared to last year's same-quarter result of 39 cents. Full-year profit views are for Electronic Arts to earn $3.06 in 2016 and grow profits by nearly 22%.

On the sales side, EA stock's revenues are expected to slip narrowly to $890.7 million versus 2015's Q4 result of $896 million. Sequentially sales are forecast to drop by roughly 50% from Q3's $1.8 billion.

Full-year sales forecasts for EA are for $4.5 billion, representing an increase of 4.65% over 2015's revenues. EA stock is also expected to grow sales by an additional 6.7% in 2017 to $4.8 billion

EA Stock Short-Term Trading Record

Over the couple years EA stock has established a strong pattern of beating Street profit views , doing so on 11 occasions and missing just once over the last few years.

Conversely, in the immediate aftermath of reporting, investor reaction in EA stock has proven to be much more of a mixed, up and down affair. Working backwards, EA has moved -7.51%, -5.25%, -1.04%, 2.99%, 12.81% and 3.82% over the past several quarters.

The price moves in EA stock has produced an average and tight move of just 0.97%, but with an attached and much larger one standard deviation of 7.30%.

EA stock's seven-period stock performance has resulted in EA rising by 1.75% on average, with a one standard deviation of 10.06% over the last six quarterly reports.

EA Stock Monthly Chart

In examining the weekly chart of EA stock, our view is bears are currently in control within a developing downtrend, and shares of Electronic Arts are more likely to head lower.

Following the broader market off the February lows, EA stock put together an aggressive, but common counter-trend rally that's stalled against a backdrop of technical resistance ranging from a moving average death cross, 50% - 62% Fibonacci retracement and oodles of obvious overhead price congestion.

With a confirmed lower high now in place, we anticipate EA stock could eventually test channel support and larger Fibonacci support zone from about $44 to $51.50.

EA Stock Options Pricing

In intraday trade Monday, with EA stock around $64.40 and tacking on a modest 0.72%, options traders are pricing in a 68% chance shares of Electronic Arts will remain within a range of $59.35 to $69.45 through Friday.

The math behind the EA stock range calculation is based on the weeklys May 13 $64.50 at-the-money straddle market, which is trading on implied volatility of 75%.

The pricing in the EA straddle is the purest play on the earnings event and tells us what traders collectively expect from EA stock in the immediate aftermath of its quarterly announcement.

The expected dollar move up or down works out to about 7.8% by Friday's close. That's a good deal larger than EA stock's recent one- and seven-session averages of 0.97% and 1.75% noted earlier.

On the other hand, given the countering but volatile individual moves in EA stock and large one standard deviation readings, options traders aren't pricing in an unusual move either and largely expect recent historical trends to continue.

Investment accounts under Christopher Tyler's management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT .

More From InvestorPlace

The post Electronic Arts Inc.: History of Beats May Not Help EA appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Markets Videos


    InvestorPlace is one of America’s largest, longest-standing independent financial research firms. Started over 40 years ago by a business visionary named Tom Phillips, we publish detailed research and recommendations for self-directed investors, financial advisors and money managers.

    Learn More