Wall Street Firm Expecting Big Returns from Overwatch 2 and Diablo Sequel

Goldman Sachs raises its rating for Activision Blizzard shares to buy from neutral, predicting strong sales results and profits above expectations in 2019 and 2020.

“We are raising our 2019 and 2020 estimates on account of a robust multi year pipeline of games — Diablo, Overwatch 2, and a Blizzard mobile title — which we don’t think Street estimates are fully taking into account,” the firm’s analyst writes.

“We believe the recent sell-off in Video Game stocks has largely been due to technical factors relating to positioning around tax reform, and does not reflect any change in fundamentals for the group. We therefore see attractive entry points across our coverage, particularly for ATVI,”

Activision Blizzard shares are up a whopping 75 percent year to date compared with the S&P 500’s 19 percent return with more room to run according to Goldman.

The analyst increased his 12-month price target for Activision Blizzard shares to $73 from $67, representing about a 16% upside. He predicts the company’s next “Diablo” game will be released in 2019 and sell 15 million units. He also forecasts “Overwatch 2” will launch in 2020 and sell 20 million units in its first year.

The analyst noted how the previous “Diablo” and “Overwatch” titles sold 30 million units in three years and more than 16 million units in its first year respectively, according to his estimates.

“When adding in the potential for non-recurring titles — Diablo, Overwatch 2, and Blizzard mobile — we believe Street estimates … seem rather conservative, particularly in 2019 and 2020,” he wrote.

As a result, Goldman estimates that Activision Blizzard will generate earnings per share of $3.04 in 2019 versus the Wall Street consensus of $2.90. The analyst also predicts the company will report earnings per share of $3.40 in 2020 versus the $3.19 average estimate.