A healthy dividend yield of 3.6% and a long-term earnings growth
projection of 9.3% make
) an interesting option for investors seeking both growth and
income. Shares of this Zacks #2 Rank (Buy) achieved a 52-week high
on Dec 12 and have returned of 21.4% year to date.
Earnings estimates for this video game and entertainment software
retailer have been moving upward since reporting fiscal
third-quarter results last month, which included a positive
earnings surprise of 18.8%. The company has beaten 6 times in the
last 9 quarters.
GameStop Beats on EPS
On Nov 15, GameStop posted fiscal third-quarter earnings of 38
cents per share, beating the Zacks Consensus Estimate by nearly
19%. In the year-ago quarter, the company earned 39 cents.
Management reiterated its fiscal 2012 earnings outlook between
$3.10 and $3.30 per share. For the fourth quarter, GameStop
projected earnings of $2.07 to $2.27 per share.
The Grapevine Texas-based company posted total revenue of $1,772.8
million, down 8.9% from the year-ago quarter. The Zacks Consensus
Estimate was at $1,791 million. Comparable-store sales dropped 8.3%
due to soft hardware and software sales, and a lack of significant
game title launches.
Earnings Estimates Climbing
The Zacks Consensus Estimate for fiscal 2012 rose 1.9% to $3.20 per
share on the back of upward revisions from 12 of 15 estimates. The
current estimate implies a year-over-year increase of 11.6%.
For fiscal 2013, the Zacks Consensus Estimate has advanced 1.2% to
$3.45 on upward revisions from 11 of 17 estimates. The current
estimate reflects year-over-year growth of 7.7%.
GameStop announced its first-ever quarterly dividend of 15 cents
per share in February 2012. In August, it raised the quarterly
dividend by 67% to 25 cents per share, representing an annual yield
of 3.6%. The company's commitment toward enhancing shareholder
return reflects its free cash flow generating capability, sound
liquidity position and well-defined future prospects.
Valuation Looks Reasonable
GameStop currently trades at a forward P/E of 8.69x, on par with
the peer group average. However, on a price-to-book basis, shares
trade at 1.64x, a substantial premium to the peer group average of
1.32x. Given the long-term earnings growth projection of 9.3%, the
PEG ratio comes in at 0.94, marginally below the benchmark of 1 for
a fairly priced stock. It has a trailing 12-month ROE of 13.9%,
which is ahead of its peer group average of 11.4%.
The stock price remains below fiscal 2012 and 2013 earnings
estimates, reflecting that it is still undervalued. Currently, the
stock price is in the range of $25.00-$30.00, and has generated a
healthy year-to-date return of 21.4%, significantly higher than the
S&P 500's return of 11.9%. Volume is strong, averaging roughly
GameStop is well positioned to take advantage of the growing market
for video game products and PC entertainment software. The company
continues to branch out and transform as a mixed retailer of
physical and digital gaming and electronics products. The company's
venture in digital, iDevice and gaming tablet businesses will be
accretive to its results.
Headquartered in Grapevine, Texas, GameStop, a Fortune 500 and an
S&P 500 company, is the global leader in retailing software,
hardware, and game accessories for video game systems and personal
computers. The company is also the largest reseller of used video
games as well as PC entertainment software. The company operates
approximately 6,650 retail stores in 15 countries. GameStop also
publishes a multi-platform video game magazine "Game Informer".
GameStop, which primarily competes against Amazon.com Inc. (
), currently has a market cap of $3.37 billion.
Want More of Our Best Recommendations?
Zacks' Executive VP, Steve Reitmeister, knows when key trades are
about to be triggered and which of our experts has the hottest
hand. Then each week he hand-selects the most compelling trades and
serves them up to you in a new program called
GAMESTOP CORP (GME): Free Stock Analysis Report
To read this article on Zacks.com click here.