Following GameStop's announcement of a $500 million share and debt repurchase program on Wednesday, stock in the retailer rose as analysts saw the buyback as a positive.
GameStop said yesterday $300 million of those funds would go towards the retailer's share repurchase program, and the remaining $200 million would be used to pay off a portion of the company's senior debt, which would be a priority to pay back if GameStop ever faced liquidation.
The $500 million buyback is in addition to the $300 million share buyback completed earlier this year. Shares on Wednesday surged more than 4 percent to $19.35 in afternoon trading on the New York Stock exchange following the news.
One of the main advantages of a company buying back its own stock is that earnings are then divided among fewer shares, which leads to greater earnings per share, potentially boosting stock prices.
Analyst Arvind Bhatia with Stern Agee called the buyback a "step in the right direction" for GameStop. "We had expected an announcement like this early next year so today’s announcement comes sooner than anticipated. We think it shows management is truly committed to share/debt buybacks and expect such buybacks to be annual events," the analyst said.
Lazard analyst Colin Sebastian agreed that the move shows "a commitment to increasing shareholder returns," echoing comments made yesterday by GameStop CEO J. Paul Raines.
