BofA Securities Reiterates Underperform Rating on GameStop (GME) After Dilutive Offering
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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."
Shares of GameStop closed at $185.20 yesterday.
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