We have maintained our long-term Neutral recommendation on GameStop Corporation (GME) with a target price of $42.00.
Why the Reiteration?
GameStop is well positioned to take the advantage of the growing market for video game products and PC entertainment software. The company’s strategy is to evolve through store expansions in favorable localities, by providing the largest title collection of video games and leveraging its first-to-market distribution network to offer the latest hardware and software releases.
The company holds a dominant position in the used video game products market and provides a greater selection of used video game products for both current and previous generation platforms. This has largely helped the company to remain afloat amid the challenging environment as the market for used video game products has been resilient to the recent economic downturn.
Despite these positives, this Zacks Rank #3 (Hold) company had earlier cautioned about a tough first half with customers postponing their purchasing activities due to the launch of a new console in the fourth quarter.
Management forecasts second-quarter fiscal 2013 comparable-store sales to decrease between 12.5% and 16%. Earnings are predicted to be in the range of 1 cent to 7 cents a share. For fiscal 2013, GameStop now expects comparable-stores sales to be in the range of -5% to +1.5%. Earnings are projected between $2.90 and $3.15 per share.
Further, the video game industry is highly competitive, and video game shoppers now have many alternatives to buy software, hardware, and game accessories for video game systems and personal computers. Alongside, competition from retail heavyweights such as Wal-Mart Stores Inc. (WMT) and Best Buy Co., Inc. (BBY) could dent GameStop’s sales and margins.
Other Stock to Consider
Until any further upgrade in GameStop’s Zacks Rank, the other company in the retail, wholesale sector worth considering includes Conns Inc. (CONN), which holds a favorable Zacks Rank #1 (Strong Buy).
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