GameStop Is Still A Buy At Loop Capital

Video game retailer GameStop Corp. GME hosted a series of meetings with institutional investors on Wednesday. Loop Capital Markets' Anthony Chukumba tagged along and offered his observations in a research report.

Chukumba maintains a Buy rating and $28 price target on GameStop's stock after leaving the meetings "incrementally more positive" on the retailer's outlook, especially in the core video game and video game collectibles.

GameStop Maintains 2017 Guidance

During the presentations, GameStop's management explained why it maintained its fiscal 2017 earnings per share guidance despite a better-than-expected first-quarter earnings report. First, management cited a lack of visibility on future Nintendo Co., Ltd (ADR) NTDOY Switch allocations, and the delay of the “Red Dead Redemption 2” video game by Take Two Interactive Software Inc TTWO publishing house Rockstar Games.

In terms of the Nintendo Switch, GameStop is happy with the product's performance so far and expects demand for the console to exceed supply for at least the foreseeable future. Moreover, the company continues to sell five software titles and accessories for each Switch device sold.

Growth Of Collectibles

GameStop expects sales of collectibles to total $650 million to $700 million in fiscal 2017. In fact, these sales are becoming more predictable than the core video game business, and management will take advantage of this trend by increasing collectible shelf space in retail locations.

Technology Brands

GameStop's Technology Brands segment (including Simply Mac, Spring Mobile and Cricket Wireless stores) did see a decrease in profitability in the first quarter, which the company attributed to a slowdown in wireless upgrades.

However, the company does expect the segment to improve in the bottom half of 2017 and management continues to expect the unit to contribute $120 million in operating income in fiscal 2017, up from $90 million a year ago.

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