Playtika (PLTK) management's reputation for operational excellence, combined with an all-time high next twelve months free cash flow yield of 21% and a dividend yield of 9%, suggests that the downside risk to the shares is limited, BofA Securities said in a note Wednesday.

The analysts said the recent drop in Playtika's stock price was caused by the exit of a major shareholder in a low-liquidity environment, concerns about the company's slow transition to growth, and investor preference for mobile advertising network assets over game publishers.

They added that Playtika has the highest profitability in its industry, the largest direct-to-consumer platform, and three of the biggest and longest-running franchises in mobile gaming.

The analysts are also increasing their 2025 forecast for bookings and earnings before interest, taxes, depreciation, and amortization to $2.85 billion and $740 million, respectively, based on data from January and February third-party sources.

Bofa noted that the company's guidance is "highly conservative" and implies a 6% year-over-year organic decline in 2025, which would be worse than the 5% year-over-year decline expected in 2024.

The analysts added they expect Playtika to improve its capital allocation in 2025, restarting growth in its leading franchises while also benefiting from the long tail of smaller games. Their forecast assumes that SuperPlay generates $465 million in bookings and that its existing portfolio declines by 5% year-over-year.

BofA Securities upgraded Playtika to buy from underperform and adjusted its price target to $6.50 from $6.

The analysts said that the valuation reflects challenges in mobile game development, the company's "solid" execution and efficiency, and uncertainties around its mergers and acquisitions strategy.

Price: 5.41, Change: +1.01, Percent Change: +22.95