Unity Software (U) gained in trading on Tuesday after Morgan Stanley analyst Matthew Cost upgraded the stock to a Buy from a Hold, reflecting renewed confidence in the video game software developer’s game engine business and its competitive position.
Analyst’s Rationale for the Upgrade
The analyst highlighted that growth expectations for Unity are now tamed as the company slashed its FY24 guidance. As a result, Wall Street analysts have pulled back on their growth estimates for the company and now expect a 6% growth between 2024 and 2027.
Furthermore, Cost emphasized Unity’s strong market position, stating, “Despite challenges in customer relations, Unity’s game engine has retained a 70% market share in mobile, demonstrating the strength of its competitive moat as rivals have struggled to gain ground.”
Unity’s game engine is a cross-platform engine that offers tools to create, operate, and publish games and real-time interactive experiences across various devices.
Given this strategic resilience, Cost upgraded the stock while maintaining a $22 price target. The analyst’s price target implies an upside potential of 25% from current levels.
Is Unity Software a Buy, Sell, or Hold?
Analysts remain cautiously optimistic about U stock, with a Moderate Buy consensus rating based on five Buys, four Holds, and two Sells. Over the past year, Unity has more than halved in value, and the average Unity price target of $26.92 implies an upside potential of 51.4% from current levels.
