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Wedbush reiterates US$42 price target on Turtle Beach after positive takeaways from management meetings

The analysts said the gaming headset maker is poised for growth from Battle Royale-style games, entry into China and expansion into the PC gaming headset market next month
Four people playing a video game
Analysts said Turtle Beach is poised for growth driven by Battle Royale-style games, and expansion into the PC gaming headset market next month

Analysts at Wedbush reiterated an Outperform rating and US$42 price target Friday on San Diego gaming headset and audio accessory company Turtle Beach Corp (NASDAQ:HEAR) citing positive takeaways from meetings with top management.

The analysts told clients the gaming headset maker offered a long-term growth opportunity after it hosted investor meetings Thursday with Turtle Beach CEO Juergen Stark.

“Turtle Beach is currently enjoying the confluence of substantial market growth and market share gains, while improved operational efficiencies are further boosting its earnings,” wrote Wedbush analysts Alicia Reese, Michael Pachter, and Matthew Breda.

READ: Turtle Beach crushes second-quarter estimates as rise of Fortnite and PUBG boosts demand for headsets

The analysts said revenue and earnings were likely to track higher than the "current guidance for financial year 2018 revenue of US$255mln and EBITDA of US$45mln, implying free cash flow greater than current guidance of US$38mln."

“We think the company is poised for continued growth driven by the expansion of Battle Royale-style games, new gamers entering the market, and its expansion into the PC gaming headset market next month. Longer-term, entry into China, and expansion into other gaming accessories should drive additional growth,” wrote the analysts.

Investment thesis

Wedbush estimates Turtle Beach has over 45% market share of the over US$1bn global console gaming headset market (concentrated in North America and Europe), and currently has an insignificant share of the US$1bn global PC gaming headset market.

“Roughly half of the PC headset market is in North America and Europe, which is Turtle Beach’s current focus. We expect Turtle Beach to reach 5% market share in 2019 before looking to expand into Asia/China (the other half of the PC headset market) in 2020,” wrote the analysts.

“We think Turtle Beach could get to 20–25% market share in PC gaming headsets in 3-4 years, or adding US$250mln to annual revenue,” they added.

READ: Oppenheimer raises Turtle Beach price target on headset demand from video gaming space

The analysts said Turtle Beach headsets are ideal for holiday gift-giving for Fornite players, as well as replacing/upgrading around major October game launches from Call of Duty, Battlefield, and Red Dead Redemption.

“Turtle Beach’s ticker, HEAR, is appropriate, as players in multiplayer games have to hear one another in squad-based modes and to hear opponents in death match mode to know where they are vulnerable. This Fortnite phenomenon exposes a large audience to multiplayer games, which require communication. Turtle Beach is capitalizing on the current gaming cycle and it has the operational ability to capture this opportunity and meaningfully expand its earnings,” wrote the analysts.

“We reiterate our Outperform rating and US$42 price target,” they added.

Shares in Turtle Beach traded flat at US$27.83 Friday.

Contact Uttara Choudhury at [email protected]

Follow her on Twitter@UttaraProactive 

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