Gauging guidance

THQ bad news not so bad after all

Video game publisher THQ Inc. lowered its financial guidance on Monday for several quarters running. Wall Street, though, apparently didn't expect much from THQ in the first place, so the stock actually rose on the news.

"Buy shares on any weakness engendered by this event," said BMO Capital Markets analyst Edward Williams, before it was known there would be no "weakness" in share price.

Williams, like other analysts, remained bullish on THQ because of its prospects, though he lowered his target price on shares from $40 previously to $35. The stock closed Thursday at $blank.

What prompted THQ to slash guidance is that "Stuntman: Ignition" and "Juiced 2: Hot Import NIghts" haven't been selling well. Plus, the debut of three additional titles have been delayed.

"Notwithstanding the disappointing performance of some recent releases, and the delay of several products into the next fiscal year, we believe the company is poised to show strong growth in calendar 2008 as the company's release schedule shows dramatic improvement," Williams said.

Williams also said that beefing up internal development staff from 100 seven years ago to 1,600 now should pay off.

"With the release of strong-selling games, this can provide powerful operating leverage compared with games developed at external studios," he said.

Lazard Capital Markets analyst Colin Sebastian lowered his price target to $35 from $39 but noted his bullishness over coming titles like "Wall-E," based on the Disney-Pixar movie, as well as sequels in the franchises "Red Faction" and "Saints Row."

The analyst likes the $6 per share the company has on its balance sheet and the fact that it bought back $42 million in stock and is authorized to buy back $17 million more.

A less bullish analyst, Mark Wienkes of Goldman Sachs, lowered his price target to $26 from $29. He suspects that the reason THQ shares didn't drop after the lowered guidance is because the bad news was already factored into the price, given that THQ shares were down 26% year to date while competitors Activision and Electronic Arts were up 33% and 15%, respectively. Wienkes is "neutral" on THQ but recommends that investors buy shares of Activision and EA.

He notes that THQ in the past four years has raised its guidance 11 times and maintained it nine times though it had not — until Monday — ever lowered its full-year revenue guidance in the four years.
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