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GameStop Analysts See Hard Road Ahead For Retailer After Poorly Received Q1

June 5, 2019 11:27 am
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GameStop Analysts See Hard Road Ahead For Retailer After Poorly Received Q1

GameStop Corp. (NYSE:GME)'s stock tanked reporting a first-quarter sales miss Tuesday — and announcing the elimination of its dividend. 

BofA Bearish On Turnaround

Bank of America Merrill Lynch analyst Curtis Nagle said urgent change is needed at GameStop, but isn't occurring yet.  

“GameStop reported 1Q operating results that were largely disappointing, with comps below expectations, an earlier than anticipated elimination of the dividend and in the words of GME’s new CEO, immediate action needed to turnaround the company is ‘off the charts,'" the analyst said in a Tuesday note. 

While GameStop’s EPS came in ahead of consensus estimates, the figure was driven by lower SG&A and interest expense, Nagle said. 

It will take at least one year for the turnaround plan to take hold, he said, questioning how much the company will be able to monetize new "experiential" and subscription initiatives that include e-sports and a revamp of the PowerUp rewards program.

BofA reiterated an Underperform rating on GameStop and lowered the price target from $5 to $4.

Baird Slashes Price Target 

GameStop's new management faces an "uphill battle," Baird analyst Colin Sebastian said in a Tuesday note. 

The elimination of GameStop’s dividend will likely further negative sentiment and narrow the potential shareholder base, he said; GameStop expects to gain over $150 million in cash by cancelling the payouts. 

“We note that newly minted management is prudently reevaluating inventory/pricing/cost-cutting strategies, but near-term trends are unlikely to improve, particularly given headlines around game streaming, cyclical headwinds and secular digitals trends." 

Baird maintained a Neutral rating on GameStop and lowered its price target from $11 to $6.

Price Action 

GameStop shares were down 38.55 percent at $4.80 at the time of publication Wednesday. 

Related Links:

GameStop Falls As Credit Suisse Lowers Earnings Estimates, Price Target

BMO Upgrades Take-Two Interactive, Calls Video Game Stocks 'Safe Havens'

Photo by Michael Rivera/Wikimedia. 

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