Janney Montgomery Scott Downgrades GameStop (GME) to Neutral; Compression in Gaming Cycle

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GME Hot Sheet

Rating Summary:
4 Buy, 6 Hold, 2 Sell

Rating Trend: = Flat

Today's Overall Ratings:
Up: 20 | Down: 11 | New: 38

Janney Montgomery Scott downgrades GameStop (NYSE: GME) from Buy to Neutral. Fair Value $28.00

Janney analyst says, "We continue to see GME benefiting from: 1) expansion of the gaming cycle to new demos; 2) countercyclical demand in the Used business; 3) hardware price cuts; 4) software improvements; 5) easing foreign exchange comps; and 6) international expansion. These drivers should bolster GME's under-appreciated cash flow and balance sheet strength, which could be leveraged for a sizable share repurchase. However, these funds may not be available until January 2010, and the near-term compression in the gaming cycle will likely undermine investor confidence despite the strong title slate.

"We are reducing our estimates to reflect the compression in the gaming cycle, which we can only attribute to macro-economic pressures that may have a lasting impact on GME's earnings. There is no doubt the title pipeline will significantly improve over the next few months, but these results have shaken our confidence in the consumer s ability/desire to purchase these games. We now expect new software SSS to decline 3.5% and 6.4% for 3Q and FY09, respectively."

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GameStop Corp. operates as a retailer of video game products and personal computer (PC) entertainment software.