GameStop (GME) Still on Buy
GameStop (GME) is about 5% lower today after Target (TGT) reported earnings that missed estimates and issued disappointing guidance. Other store-based retailers, like Dollar General (DG), Barnes & Noble (BKS), Williams-Sonoma (WSM), Best Buy (BBY) and JC Penney Company (JCP) are also pulling back today. Analysts fear that Target stores’ lower traffic and comp sales are a bellwether for other brick-and-mortar retailers.
I’ll keep GME on Buy—the stock is above its 50-day moving average and lows from November and January, and remains significantly undervalued. But a longer or deeper rotation out of retail stocks could delay GME’s recovery, so we’ll be keeping an eye on it.
Our next stock-specific piece of news to digest will be GameStop’s 2016 earnings announcement sometime in March (the company’s fiscal year ends in January). Analysts are expecting fourth-quarter EPS of $2.28 (down 5% year over year) and revenue of $3.11 billion (down 11.7%). For the full year, sales are expected to fall 7.5%, to $8.66 billion, while EPS are expected to decline 5.6%, to $3.68. Earnings growth is expected to return in 2017 as growth in GameStop’s new businesses—digital downloads, technology brands and collectibles—offsets shrinking video game sales.