GameStop Shares Are Well Positioned To Rebound In 2017

GameStop Corp. GME is scheduled to report its 2016 holiday sales results Friday. The company may narrow its Q4 comps guidance range, while keeping its EPS guidance “largely unchanged,” Wedbush’s Michael Pachter said in a report.

Pachter expects GameStop’s shares to rebound in 2015. He maintains an Outperform rating on the company, with a price target of $30.

Q4 Guidance

GameStop’s 2016 holiday sales results will include the retail months of November and December. The absence of any pre-announcement indicates that the company’s Q4 EPS guidance is not at risk, Pachter commented.

GameStop’s current Q4 guidance for comps projects a decline between 12.0–7.0 percent, while the EPS guidance range is at $2.2–$2.38. This compares with Wedbush’s estimates of -7.5 percent and $2.38, respectively.

“On the software front, many high-profile new releases lagged earlier expectations for physical sales, most notably Activision Blizzard, Inc. ATVI ’s 'Call of Duty: Infinite Warfare,' EA (Electronic Arts Inc. EA)’s 'Titanfall 2,' and Ubisoft’s 'Watch Dogs 2.' GameStop’s sales were also likely impacted by continued hardware discounting,” the analyst wrote.

Rebound In Shares

The Q4 EPS could come in at the high-end of the guidance range. Pachter added that FY 2017 EPS could reflect “modest growth due to the new businesses.”

GameStop’s shares could continue to be under pressure till the company can successfully reverse the decline in its core video game business. The analyst further mentioned, “Once sales are more stable and it begins to deliver on the earnings growth promised by its new initiatives, shares could appreciate.”

Image Credit: By Oxiq - Own work, CC0, WikiMedia Commons
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Posted In: Analyst ColorEarningsLong IdeasNewsGuidancePreviewsReiterationAnalyst RatingsTechTrading IdeasMichael PachterUbisoftWedbush
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