BB&T Discusses GameStop's Beat And Raise

In a report published Friday, BB&T Capital Markets analyst Anthony Chukumba reviewed GameStop Corp. GME's first quarter "beat and raise" print.

"We were particularly impressed by GameStop's new video game software sales growth, which was the strongest since the second quarter 2014 despite a 620 basis points currency exchange headwind and throws cold water on the ‘digital disintermediation' secular bear argument," Chukumba wrote.

Chukumba pointed out that GameStop's reported 8.6 percent comparable-store sales growth was 2.0 percent better than he expected and driven by a 9.6 percent increase in new video game software sales and double-digit same-store sales in Australia and Canada. In addition, the company reported year-over-year sales growth in mobile and consumer electronics, video game accessories and new video game hardware.

See Also: So… Does Wall Street Like GameStop Now?

GameStop's management raised its full year 2015 earnings per share guidance to a range of $3.63 to $3.83 (from $3.60 to $3.80). The analyst noted that the company's guidance does not include any additional share repurchases beyond the $46.4 million it already bought back year-to-date even though it still has a remaining $400.9 million under authorization.

As such, Chukumba stated that the company's guidance is conservative, especially when considering it generates "strong" free cash flow and management has a reputation of regularly returning cash to shareholders through dividends and share repurchases. He also added that GameStop's Technology Brands leverage the company's core competencies and provide an additional "attractive" growth vehicle while the company will also see success in the growing Collectibles category.

Bottom line, GameStop is "the undisputed" leader in video game retailing and will continue to differentiate itself from its peers (including big-box chains) through a larger software assortment, superior customer service and the PowerUp Rewards loyalty program.

Shares remain Buy rated with an unchanged $55 price target, which is based on a 14.1x multiple on the analyst's fiscal 2015 earnings per share estimate of $3.92.