BofA upgrades Playtika as it sees 48% upside on strong cash flow

March 27, 2025 01:47 AM AEDT | By Investing

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BofA upgrades Playtika as it sees 48% upside on strong cash flow

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Investing.com -- Bank of America upgraded Playtika Holding Corp (NASDAQ:PLTK) to Buy from Underperform and raised its price target to $6.50 from $6.00 on strong free cash flow and potential growth upside. The new target is a 48% upside from current levels.

Playtika, a top mobile gaming company, has the highest profitability in the industry with 30% EBITDA margins and owns three of the longest-running game franchises.

While mobile gaming is a mature industry, it is still growing by around 4% annually. BofA highlighted that Playtika’s 21% FCF yield and 9% dividend yield reduce the risk of further downside.

BofA pointed to three factors behind Playtika’s recent stock weakness. The exit of a large shareholder in a low-liquidity market. Concerns that Playtika’s return to growth is taking too long. While there is investor preference for mobile ad companies like AppLovin (NASDAQ:APP) over gaming publishers.

BofA raised its 2025 revenue and profit estimates to $2.85 billion and $740 million, respectively, after analyzing data from January and February.

It believes Playtika’s current guidance is overly cautious, implying a 6% revenue decline for 2025, despite the company’s efforts to restart growth. Playtika’s SuperPlay unit is expected to generate $465 million in revenue, up 22% year-over-year, with current data tracking 43% higher than last year.

BofA cautioned that while Playtika aims to split its FCF between dividends and acquisitions, this is not a firm policy. The motivations of its largest shareholder, which owns 63%, remain unclear, posing a potential risk to the dividend.

BofA’s $6.50 price target values Playtika at 6x its 2025 EBITDA, which is in line with other mobile gaming companies. At this price, Playtika’s FCF yield would still be 14%, offering a better return than its 2029 bonds.

We see a favorable risk/reward setup for the next 12 months, BofA concluded, citing the potential for stronger-than-expected growth in 2025.

This article first appeared in Investing.com

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