Market analyst firm Wedbush Morgan Securities announced that it has maintained its stock rating of “strong buy” for shares of U.S. video game retailer GameStop, with a 12-month price target of $55, in anticipation of the company's second quarter earnings to be announced on August 17, 2006. As of this writing, Gamestop shares are trading at $46.38, up slightly more than half a percent from the opening price of $45.72.
The firm commented in a research note obtained by Gamasutra that, based on recent NPD sales data that showed sales up on strong DS, PSP, and Xbox 360 hardware and software sales, it expects GameStop to report financial results that are “substantially” above both estimates and guidance provided by the company. Wedbush's previous estimates included revenues of $994 million, same store sales of +8%, and EPS of $0.10.
Wedbush added that “there may be even more upside to our EPS estimate if the company recognizes acquisition synergies more rapidly than expected", referencing the firm's relatively recent acquisition of chief U.S. rival Electronics Boutique.
The firm anticipates that the retailer will announced that is increasing its fiscal 2006 guidance, but will remain cautious regarding the latter portion of the year due to the number of unknown factors, namely the quantities and allocations of the Wii and PlayStation 3, both of which are expected to launch within this window.
However, the analyst conceded that its predictions regarding share price for the retailer depend strongly on the timing of upcoming releases, and could be affected by competition, as well as slower than expected consumer demand for video game hardware and software.
Finally, Webush commented that the firm believes that the current price of GameStop shares represents a “compelling entry point,” and that “publisher concerns about the company’s used game business are easily remedied.” The firm added that it expects GameStop to perform well into fiscal 2007 “due to a combination of square footage growth, solid same store sales, cost savings, better than expected integration of the Electronics Boutique merger, better margins on used games, and strong next generation console launches for Wii (Q4) and PS3 (November).”
