GameStop Plan For Stock Sale 'Understandable' — Analyst Says Fundamentals Healthy

GameStop Corporation’s  GME decision to up its at-the-market program’s scope to $1 billion is “understandable,” according to Telsey Advisory Group’s Joseph Feldman. 

The GameStop Analyst: Feldman kept his price target at $30 and Underperform rating on the retailer.

The GameStop Thesis: On the GameStop ATM program, the analyst noted that an increase to $1 billion from $100 million but no more than 3.5 million shares means that there will be a dilution of approximately 5% for existing shareholders or $0.02 in 2021. 

Feldman wrote in a note on Monday that “the company's decision to increase the size of its ATM Program is understandable, given the stock's elevated price.”

GameStop shares closed 2.35% lower at $186.95 on Monday and gained 0.77% in the after-hours trading. On Monday’s closing price, GameStop would be able to raise $654.32 million, excluding commissions.

TAG increased its EPS forecast to ($0.20) from ($0.27). As per Feldman, in the future, the video game retailer should benefit from a new gaming cycle, the company’s agreement with RC Ventures and a board refresh, and a healthy balance sheet with a net cash position of $272 million at the end of the fourth quarter.

Nevertheless, GME "has yet to show financial success in an industry that is rapidly shifting to digital,” wrote Feldman.

“We continue to believe the current valuation far exceeds our rosy fundamental expectations and projected multi-year benefits from the strategic transformation.”

GameStop reported fourth-quarter revenue of $2.12 billion, a year-over-year fall of 12%. Quarterly earnings of $1.34 per share missed the analyst consensus estimate of $1.35.

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