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Nintendo Switch Gives GameStop An Extra Life In Q1

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Nintendo Switch Gives GameStop An Extra Life In Q1

After reporting better-than-expected first-quarter results, Baird analyst Colin Sebastian maintains his Outperform rating and $24 price target on GameStop Corp. (NYSE: GME).

He said: “We remain encouraged by continuing growth in the company's non-physical gaming segments. While Switch sales may provide a potential upside opportunity through the balance of the year, supply constraints are an area of uncertainty.”

Strong Nintendo Switch Sales A Reason To Believe In GameStop

In a typically slow quarter due to seasonality, growth in new hardware sales drove a 2.3-percent increase in overall same stores sales driven by the launch of the Nintendo Co., LTD (OTC: NTDOY) Switch. Specifically, US same stores sales declined 2.4 percent while international sales grew by 17.1 percent as GameStop continues to improve their market in Europe.

Transitioning Toward Entertainment

On the earning call, management discussed how AT&T Inc. (NYSE: T)-branded stores were going to start focusing more on communications, entertainment and media. Sebastian said, “With the transition expected to impact growth over the next few quarters, management's $120 million target for F2017 segment operating earnings implies a significant ramp in growth in 2H17, likely attributed to the launch of new flagship mobile devices.”

The Big Picture For GameStop

Management did not change 2017's guidance, as they see the "Red Dead Redemption 2" delay being offset by other products. Sebastian believes Switch could sales could provide a possible upside.

He concluded by saying, “Our long-term constructive view is based upon the company's prospects in building a diversified family of retail brands, while the near-term focus now turns to the upcoming E3 industry conference as we gain more clarity into the upcoming holiday release slate.”

At time of publication, Nintendo shares were up 4.37 percent at $37.52, while GameStop shares were down 6.55 percent at $22.10.

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Latest Ratings for GME

DateFirmActionFromTo
Sep 2019MaintainsSell
Sep 2019MaintainsOutperform
May 2019MaintainsUnderperform

View More Analyst Ratings for GME
View the Latest Analyst Ratings

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