The analyst thinks ZNGA is in a strong position ahead of an anticipated sector consolidation
The shares of online gaming issue Zynga Inc (NASDAQ:ZNGA) are up 2.2% in pre-market trading, after Stephens dubbed the name its "Best Idea" in video games, replacing sector rival Electronic Arts (EA). The analyst said ZNGA is "well positioned" ahead of an anticipated consolidation in the video game space over the next six to 18 months, and believes the stock's current portfolio creates a "very compelling risk/reward profile."
Today's pre-market moves could have the equity is testing its 100-day moving average -- a former layer of support that has kept a lid on the shares since mid-August. Longer term, ZNGA is up over 50% year-to-date, with its 160-day effectively catching the stock's recent pullback from its Aug. 1 seven-year peak of $6.65.
Zynga has been well-loved by analysts, with 10 of the 12 in coverage calling it a "buy" or better. Plus, its consensus 12-month target price of $7.36 is at a roughly 25% premium to last night's close at $5.87, and represents a level ZNGA hasn't reached since May 2012.
Options bulls seem to like the Words with Friends developer, too, as evidenced by the 36.32 calls that were bought to open for every put on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) in the last 10 days. What's more, this call/put volume ratio sits higher than 91% of all other readings from the last year, meaning this massive appetite for bullish bets relative to bearish is unusual.