Broadpoint.Amtech Initiates Coverage on GameStop (GME) with a Buy; Continues to Defy Naysayers

October 15, 2009 10:58 AM EDT

Broadpoint.Amtech initiates coverage on GameStop Corp. (NYSE: GME) with a Buy rating. Price target $33.

Broadpoint analyst says, "The bottom line is that GME continues to defy the naysayers. For years, the bear case has remained the same: that some combination of competition in Used, store over-saturation, inventory build-up, and/or digital distribution will kill the business of a video game specialty retailer. However, year after year, GME continues to grow and execute against plan as it defies the competition and conventional wisdom about its store openings. While digital distribution is a clear long-term threat, it will not significantly impact the model before 2017, in our opinion. In the meantime, the company should be able to generate FCF of $400-$600mil annually over the next several years. GME also has the potential to expand operating margins, particularly in Europe. We still see opportunities for more stores in the U.S. (particularly given the very short pay-back period and GME's flexibility with its real estate portfolio/lease arrangements), and certainly more internationally. With a take-out of GMG unlikely in our opinion, GME will have enough cash to continue its trajectory of store growth while investing in new initiatives, and still have plenty of dry powder to buy back debt and/or stock. With near-term fundamentals in the industry improving for holiday 2009, a very strong line-up of software and hardware next year, and long-term potential for significant FCF generation, we are initiating with a Buy rating."

To see more analyst ratings on GME Click Here.

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