The product cycle for GameStop is continuing to look stronger as more major titles are being previewed and then released. Major titles mentioned in the Sterne Agee report that have been released this year are Destiny and Call of Duty. GameStop and Activision herald Destiny as the most pre-ordered game of all-time. The game gained its popularity from producer Bungie, the creator of the famous Halo franchise. Arvind Bhatia of Sterne Agee indicated that these strong results and potential sales suggest a larger upside for earnings in the coming holiday season, and even into 2015 as more titles are announced and released.
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Brian Nagel of Oppenheimer reiterated his Outperform rating and $47 price target. Nagel targets earnings per share at $3.67 for this fiscal year ending in February and the following year at $4.55 per share. Thomson Reuters has estimates on earnings per share at $3.70 for the current year and $4.39 for the coming year. Nagel went on to say:
In our view, still pervasive market concerns over digital downloads and competitive threats for GME are overblown, at least near term. We are increasingly encouraged that a strengthening product cycle will fuel stronger results and potential sales and EPS upside in holiday 2014 and into 2015. Our tour of the Expo floor and our discussions with management suggest an improving lineup of new-generation software titles and strong demand for these products. GME maintains that the company is at least holding its own as full game downloads grow to represent a modestly larger share of total software sales. A new GME credit card set to launch later this month should afford core customers heightened buying power.
Sterne Agee’s Arvind Bhatia has a Buy rating on GameStop and on Activision Blizzard. He said:
The quality of this year’s Call of Duty title (Advanced Warfare) is being praised by many. While pre-orders for this title continue to be down year-over-year, GME is expecting a pick up post the launch of Destiny and as we get closer to the launch. Last, based on conversations at the Expo, we get the sense that at Blizzcon (Nov) this year, there is good chance the beta for Blizzard’s Heroes of the Storm could be announced/become available with a potential full game launch in March/April next year. Heroes of the Storm appears to have significant potential and could be an important driver for Activision in 2015.
GameStop shares were trading at $43.63 mid-Thursday. The video game retailer has a consensus price target of $50.20 and it has a 52-week trading range of $33.10 to $57.74.
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