GameStop Corp. (NYSE: GME): Earnings Preview for Q4 2009
Mon, Mar 15, 1:32 PM ET, by Scott V. Nystrom
 GameStop Corp. (GME) is scheduled to report their fourth quarter 2009 results before the market opens on Thursday, March 18. We expect GameStop to report better than expected results exceeding Wall Street's consensus expectations.
Ask any kid, and they will tell you all about GameStop. The Grapevine, Texas-based company is the world’s largest video game retailer. It sells new and used video game hardware, software and accessories like controllers, memory cards, and other products. The company publishes the most widely distributed video game publication in the United States, Game Informer, with 2.2 million subscribers. According to the company website, GameStop operated 6,200 stores with 46,000 employees primarily under the names GameStop and EB Games in 13 countries including the United States, Australia, Canada, and Europe. Consensus Expectations We are forecasting revenues of $3.51 billion and earnings per share of $1.30. This would represent a marginal increase in revenue from last year's $3.49 billion for the same period. The current analyst consensus estimates calls for revenues of $3.45 billion and EPS of $1.28. In the third quarter of 2009, GameStop reported earnings of $52.2 million or 32 cents per share. Revenues were $1.8 billion for the quarter ended October 31, 2009. For fiscal year 2009, analysts are expecting earnings of $2.26 per share on $9.0 billion in revenue. GameStop has a history of barely beating earnings estimates for two of the last three quarters. While the current retail environment remains quite challenging, GameStop continues to be a leader in the industry with a solid brand recognition among teenagers and young adults. Company management lowered its fourth quarter 2009 guidance on January 7, 2010. GameStop now expects fourth quarter 2009 diluted earnings per share to range from $1.25 to $1.29. Comparable store sales in the quarter are now expected to range from -8.5 percent to -9.5 percent from the same quarter in 2008, despite the launching of the popular video game Call of Duty in the fourth quarter of 2009. The company summarized its strategic position for 2010, “...we expect that strong PlayStation 3 demand, an exciting title line-up, combined with anticipated economic recovery, will all be factors that should drive software growth and therefore GameStop earnings in 2010.“ Share Performance Since the beginning of the year, GameStop's shares have lost 14 percent. There is no doubt that GameStop's stock has disappointed investors so far in 2010. However, the company appears to be refocusing on increasing shareholder value with share buybacks. Adding to the potential share price intrigue, TheFlyOnTheWall.com issued a note last week on "renewed takeover chatter" for GameStop. 
Valuation GameStop shares are now trading at 8x forward price/earnings (p/e) 2010 estimates. This is a sharp discount to the relative valuations for its peer group with Amazon (AMZN) running at 63x p/e, Best Buy (BBY) with a 15x p/e, and Wal-Mart (WMT) at a 15x p/e. The industry average is 14x p/e. Despite a recent rally based on a takeover rumor, GameStop continues to trade well below the valuation levels of its peers. Recommendation: Buy with a $24 price target. Disclosure: Long GME
SDI Glossary: "Call" Definition
SDI Glossary: "price" Definition
SDI Glossary: "EPS" Definition
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