This prompted analysts to revise their estimates higher, sending the stock to a Zacks #2 Rank (Buy).

Although growth has slowed at this once-hot retailer, analysts still project 9.5% long-term EPS growth. On top of this, the company pays a dividend that yields a solid 2.6%.

And valuation is attractive with shares trading at less than 8x forward earnings.

Company Description

GameStop Corp. is the world's largest video game retailer with 6,683 stores in 17 countries.

It is headquartered in Grapevine, Texas and has a market cap of $3.2 billion.

Fourth Quarter Results

GameStop delivered better than expected fourth quarter results on March 22. Adjusted earnings per share came in at $1.73, beating the Zacks Consensus Estimate by a penny. It was a solid 10% increase over the same quarter in 2010.

Total sales for the quarter were $3.58 billion, down 3% from the same quarter in 2010. This was driven by a 3.6% decline in same-store sales.

Sales increases in both New Video Game Software and Used Video Game Products were more than offset by a decline in New Video Game Hardware.

Meanwhile, GameStop's overall gross profit margin expanded from 24.5% to 26.4% of sales.

Estimates Rising

Management provided an encouraging outlook for 2012, stating that it expects operating earnings growth based on "the continuation of our transformation, led by our strong pre-owned business, expanding digital offerings and emerging mobile categories."

The company expects earnings per share between $3.10 and $3.30 on sales growth of 1-5%. This prompted analysts to revise their estimates higher for both 2012 and 2013, sending the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2012 is now $3.20, within guidance, and representing 12% growth over 2011 EPS. The 2013 consensus estimate of $3.47 corresponds with 8% EPS growth.

Returning Value to Shareholders

GameStop generates strong free cash flow and has no long-term debt which has enabled it to return value to shareholders through dividends and stock buybacks.

During the fourth quarter the company repurchased 2 million shares of stock for a total of $45.3 million. And so far in 2012, it has repurchased 3.3 million shares for $76.3 million.

And on February 7 GameStop initiated a regular quarterly dividend of $0.15 per share. It currently yields a solid 2.6%.

Valuation

GameStop has been unloved by the market over the last two years, with the stock trading within a range of $18-$28.

Despite decent earnings growth projections, shares trade at just 7.3x 12-month forward earnings, well below its 10-year median of 13.9x.

Based on a consensus long-term EPS growth rate of 9.5%, its PEG ratio is an attractive 0.8.

The Bottom Line

With rising estimates, solid growth projections, shareholder-friendly management, a 2.6% yield and attractive valuation, GameStop offers investors a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.