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GameStop Analysts Weigh In Following Mixed Q1, Concerning Outlook

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GameStop Analysts Weigh In Following Mixed Q1, Concerning Outlook
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GameStop Corp. (NYSE: GME) shares slipped as much as 6 percent Monday after it reported mixed quarterly results and a disappointing outlook. However, the shares recouped some of its losses.

"While the specialty retailer beat EPS estimates by $0.15 at $2.40, they missed on revenue and provided poor guidance over the next quarter and fiscal year," Benzinga's Nicholas Donato reported on the PreMarket Pre Morning Show last Thursday. The mixed results came despite the fact that "2015 provided a wide arrange of great video games, yet GameStop was not quite able to capitalize on the slate in the fourth quarter."

"GameStop projects comparable store sales decreasing anywhere from 7–9 percent for the first quarter, while 2016 best case scenario is 0-3 percent fall year-over-year," Donato commented.

Related Link: GameStop Shares Fall, But Maybe They Shouldn't Have

Grapevine, Texas-based GameStop is in a transition phase and is shifting their focus from a trade-in model. "It comes to little surprise that GameStop's shares traded lower on poor top and bottom line guidance," Donato added.

However, the report did have its positives. Donato explained, "[I]t should be noted that GameStop is taking on $475 million in debt to acquire 450-500 stores from AT&T, which Telsey Advisory Group's Joseph Feldman believes is a profitable area of the business. Other acquisitions that shift from the trade-in model, such as Geeknet, may have contributed to one of the positive areas of the report in collectible merchandise seeing a 300 percent increase from prior year quarter."

Heard On The Street

Below is a quick rundown on what other analysts had to say regarding the stock.

Credit Suisse: Neutral, PT From $38 To $30

Analyst Seth Sigman said, "We think there could be risk to that (2016) outlook; we estimate hardware and software declines alone could negatively impact total revenue by ~4 percent (based on hardware down 10 percent and software down 5–10 percent). If we assume traditional gaming negatively impacts total revenue by 4 percent instead of the 1.5 percent that could equate to a $0.10–0.20 hit to EPS."

Credit Suisse said that although the stock is cheap, "a clearer roadmap to growing comps and profit sustainably and organically, will be key for the stock from here."

Related Link: Rising Expectations For GameStop, Signet Jewelers Earnings

Sterne Agee: Neutral

According to Arvind Bhatia, "GME's 2016 guidance is 1) the clearest acknowledgement yet from management that physical gaming is now in decline but also; 2) indicative of the rapid pace at which this management team is diversifying and transforming the company.

"More than 30 percent of operating earnings in 2016 are expected to be derived from sources other than physical gaming and this mix is expected to be 50 percent by the end of 2019."

"We think the strategy is sound but also recognize that executing major transformations is neither easy nor smooth. We maintain Neutral rating pending improved visibility on the earnings power of the 'new' GameStop," Bhatia explained.

Stifel Nicolaus: Hold

In a client note, the brokerage said, "We want to understand how long-term economics of Tech Brands will work (we expect early periods have good economics as GME provides value to AT&T in 'rolling up' the dealer network)."

Ascendiant Capital: Buy, PT Cut To $31

Ascendiant Capital, though maintained its Buy rating, said "free games and digital remain a concern."

At time of writing, GameStop was up 1 percent at $30.58. More than 5 million shares changed hands compared to its three-month average volume of 2.5 million shares a day.

Image Credit: Public Domain
Nicholas Donato contributed to this report.

Latest Ratings for GME

DateFirmActionFromTo
Mar 2017WedbushMaintainsOutperform
Mar 2017Telsey Advisory GroupDowngradesOutperformMarket Perform
Jan 2017MacquarieDowngradesOutperformNeutral

View More Analyst Ratings for GME
View the Latest Analyst Ratings

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