Gamestop (GME) received a slight cut to its price target Friday from Wedbush following the videogame and consumer-electronics retailer’s late-Thursday report of better-than-expected fiscal Q3 results but a reduced earnings-per-share outlook for the fiscal year.
Wedbush’s new price target on the stock is $18 per share, down from $19. The reduced target is still well above the stock’s recent trading level as the shares tumbled 11% in recent Friday pre-market trading to $13.08 on the disappointing fiscal-year outlook.
In a note to clients, Wedbush said “we expect shares to trade at a compressed EPS multiple until the company can slow the rate of decline in its core videogame business.”
The firm noted the eventual sale of Gamestop’s Spring Mobile business, which the company recently announced it agreed to sell for $700 million to Prime Communications, “increases the potential for GameStop to ultimately be acquired.”
Wedbush added: “With EPS declining more rapidly than we expected ($3.34 last year and an estimated $2.75 this year) before taking into account the proposed Spring Mobile sale, GameStop clearly deserves to trade at a compressed multiple.”
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Still, the firm maintained its investment rating on the shares at outperform, citing large appreciation potential.
After Thursday’s market close, GameStop reported its fiscal Q3 ended Nov. 3 had adjusted earnings per share of $0.67, up from $0.54 a year earlier and above analysts’ mean estimate according to Capital IQ of $0.56. Net sales rose to $2.08 billion from $1.99 billion in the year-earlier period, topping analysts’ mean estimate of $2.03 billion. Comparable-store sales rose 2.1%, surpassing the 0.9% increase expected on average by analysts.
However, Rob Lloyd, chief operating officer and chief financial officer, said “while our Black Friday and Cyber Monday sales were strong, we anticipate that our fourth-quarter sales will skew more toward hardware than initially planned which, along with underperformance of certain titles, weakness in pre-owned and recent sales promotions, will result in fourth-quarter earnings that are below our previous expectations.”
In turn, the company said it now expects fiscal 2018 adjusted EPS of $2.55 to $2.75, down from its prior guidance for $3.00 to $3.35. GameStop reiterated its prior guidance for total sales to be down 2% to 6% and comparable-store sales to be flat to down 5%.
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