BofA Securities Reiterates Underperform Rating on GameStop (GME) After Dilutive Offering

April 6, 2021 7:38 AM EDT
Get Alerts GME Hot Sheet
Price: $20.01 -1.09%

Rating Summary:
    3 Buy, 11 Hold, 8 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 8 | Down: 20 | New: 17
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BofA Securities analyst Curtis Nagle reiterated an Underperform rating and $10.00 price target on GameStop (NYSE: GME) after the company announced that it will be conducting a share offering of up to 3.5mn shares (~5% dilution). The program is up to a dollar amount of $1bn and at the GME share price of $183, it would total ~$650mn upon completion. This marks an increase from an initial $100mn program and will be conducted through an at the market offering (shares sold directly into the market opposed to an announced share offer at a set share price).

The analyst stated "More cash in the door is certainly a positive for GME as it gives GME a higher degree of flexibility and it will add to a current cash position of approximately $600mn (net debt of -$255mn). GME has also turned over a significant portion of the management with new several executives that have meaningful digital and ecommerce experience. However, we think that GME is still a very long way from executing a turnaround and: 1) GME’s core gaming business is extremely challenged and losing share at a highly concerning rate; and 2) any progress on transitioning the business (or acquiring new ones) is more than priced into shares, in our view. In 2020 GME generated EBITDA of $(154)mn. Even if we were to assume an average hardlines EV multiple of 10x (which we view as too generous and compares to GME’s 5yr avg. of ~4x), GME’s current share price implies EBITDA of ~$1.2bn which we don’t see as realistic in achieving."

For an analyst ratings summary and ratings history on GameStop click here. For more ratings news on GameStop click here.

Shares of GameStop closed at $185.20 yesterday.

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