Piper Jaffray Upgrades GameStop (GME) to Buy; $35 PT

October 13, 2008 8:17 AM EDT

Piper Jaffray upgrades GameStop (NYSE: GME) from Neutral to Buy but lowers its price target from $35 to $50, citing valuation and healthy fundamentals.

The firm notes a 60% slide in shares of GameStop over the last year. The stock is currently trading at around 10x FY09 estimates, which project earnings growth of 40% in FY08 and 18% in FY09. As markets stabilize, Piper sees GameStop continuing to execute well and believes its stock "should benefit from increased hardware sales and an attractive slate of software releases during the balance of CY08 and CY09."

Piper lowered its FY08 and FY09 sales and EPS estimates on GameStop: for FY08, sales go from $8.71 billion to $8.62 billion and EPS go from $2.55 to $2.50. For FY09, sales move from $9.37 billion to $9.11 billion, while EPS move from $3.10 to $2.95. The Street is expecting sales of $8.88 billion and EPS of $2.50 for the year.

The firm said its $35 price target on GameStop is based on a PE of just 12x next year's EPS estimate of $2.95.

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

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