SunTrust Says 'Out With The Old At GameStop'

In a report published Thursday, SunTrust Robinson Humphrey analyst David Magee commented that after several years of declining video-game software sales, the tide has finally turned.

"While current-gen software sales did rally last year, the decline in old-gen was greater than expected, which hurt overall sales," Magee wrote. "However, this year, current-gen sales have been strong enough to offset the decline in old-gen."

The analyst said that we are now at an "inflection point," and should see positive software sales growth continue which can benefit video game sellers like GameStop Corp. (NYSE: GME).

Magee stated that software sales will finally be positive throughout a full year, and 2015 sales could increase by at least 3 to 5 percent from 2014. Part of the reason for the improved sales is an improved line-up of games given several delays from last year's fourth quarter that moved into the first quarter of this year, including "Battlefield: Hardline." In addition, March had a "solid" title line-up with "Battlefield, Bloodborne" and "Mario Party 10."

Moving forward into 2015, the analyst expects a strong tentative line-up of releases that will be confirmed during the June E3 conference.

Related Link: What Gaming Investors Need To See Before Earnings

How GameStop Fits In

According to Magee, GameStop's current-gen hardware market share stood at 28 percent at the end of last year, and held a 46 percent market share in software. The analyst speculated that GameStop's market dominance can be attributed to its strong customer loyalty program that has fended off repeated attempts by larger peers to make "runs" at the category.

The analyst revised his 2015 earnings per share estimates higher to $3.85 from a previous $3.80, based on a 4.5 percent comp growth assumption (revised higher from prior estimates of 4.0 percent). For 2016, Magee is now projecting a 6 percent growth in software sales (versus prior estimates of 3.0 percent), resulting in a full year earnings per share estimate revised higher to $4.35 from $4.30.

Shares remain Buy rated with an unchanged $50 price target.