Jefferies Sees Upside In GameStop, With New Xbox, PlayStation As Catalysts

GameStop Corp GME caught a sell-side upgrade Monday morning after reporting second-quarter earnings last week.

The GameStop Analyst: Jefferies analyst Stephanie Wissink upgraded GameStop shares from Hold to Buy and raised the price target from $7 to $8.

The GameStop Takeaways: “Q4 kick-starts the next gen console cycle and we expect GME to win big and early,” Wissink said in the Monday upgrade note.

The new console launch from Microsoft Corporation MSFT and Sony Corporation SNE is the major catalyst for GameStop and will also trigger the following for the company, the analyst said:  

1. New hardware sales and needed trade-in inventory

2. New software sales, including many "Triple A" blockbuster games

3. High-margin preowned sales, with the new consoles having backwards compatibility

4. Peripherals and accessories

5. Digital with improved downstream capture of value

6. Loyalty membership expanded

7. Opportunities to leverage omni, with data and mobile app downloads

“We expect demand to outstrip supply,” Wissink said.

The price target of $8 is based on selling 1 million units of the Playstation 5 and Xbox X consoles in the fourth quarter.

For fiscal year 2021, Wissink forecast 3 million hardware units sold, the same ratio as prior cycles.

Every 1 million units of hardware sold is worth $20 million in incremental EBITDA, the analyst said.

Benzinga’s Take: The upgrade from Jefferies comes after two analysts maintained bearish ratings on GameStop after a disappointing earnings report. Credit Suisse has an Underperform rating and $3.50 price target. Benchmark has a Sell rating and $3 price target.

GME Price Action: GameStop shares were trading 7.55% higher to $6.55 at last check Monday. 

Shares have fallen 20% over the last week. 

Photo via BentleyMall on Wikipedia.