GameStop (GME) Reiterated Underperform at BofA Securities, Structurally this Cycle Worsens the Company's Competitive Position

January 27, 2021 7:58 AM EST
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Price: $140.99 -0.07%

Rating Summary:
    3 Buy, 11 Hold, 8 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 13 | Down: 17 | New: 52
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BofA Securities analyst Curtis Nagle raised the price target on GameStop (NYSE: GME) to $10.00 (from $1.60) while maintaining a Underperform rating noting that the new board member Ryan Cohen (CHWY founder and ex-CEO) will unlikely be able to offset the structural pressures that will likely accelerate in this console cycle.

The analyst stated "One of the major opportunities highlighted by GME bulls is the expansion and improvement of GME’s online/omni-channel platform. COVID has helped accelerate GME’s online sales to 30% of total from under 10% but we see a higher mix to online as a negative for earnings. Very simply, the more business that shifts from in-store transactions, the more difficult it will be to sell high margin pre-owned and collectibles merchandise which accounted for 46%E of gross profit dollars in 2019".

He went on to state "We remain skeptical on the potential for a turnaround but recent share price momentum is likely to provide support in the near-to-medium term and we raise our PO to $10 on 8x 2022E adj. EV/EBITDA from $1.60 on 2.5x prior on 2021E. While it is difficult to know how much very high short interest and retail ownership could continue to put upward pressure on shares, we think fundamentals will again factor into valuation and note that at current price of $148 and GME’s average five year EV of 3.7x it implies EBITDA of $2.6bn vs. $(65)mn in ‘20".

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