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Bull of the Day: GameStop (GME)

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Blockbuster success of Pokémon Go has boosted sales of many video game and Smartphone retailers. GameStop shares have rallied sharply this month but can the craze for the game continue to boost shares going forward?

About the Company

Headquartered in Grapevine, TX, GameStop Corporation (GME - Free Report) is a global specialty retailer of multichannel video game, pop culture collectibles, consumer electronics and wireless services. The company is also the largest reseller of used video games as well as entertainment software.

GameStop operates more than 7,000 stores in 14 countries across Europe, Canada, Australia and the US. Their products are sold through stores and eCommerce website. Their Technology Brands segment includes Simply Mac, Spring Mobile and Cricket stores.

First Quarter Results

GameStop reported better-than-expected results for Q1. Adjusted earnings of $0.66 per share beat the Zacks Consensus Estimate of $0.61 and net sales of $1,971.5 million were also ahead of the Zacks Consensus Estimate of $1,952 million.

The company's lackluster guidance for Q2 resulted in shares selling off after results.  However, shares have rallied strongly in the past few weeks after release of Pokemon Go. In fact, analysts have been raising their estimates for the company of late.

Zacks Consensus Estimates for the current and next year are now $4.02 per and $4.28 per share respectively, up from $4.00 and $4.24, 60 days ago. They beat the Zacks Consensus Estimates in all of last four quarters.

The company will report on August 25 and with an Earnings ESP (Expected Surprise Prediction) of 17.24%, the stock is likely to beat estimates again. ESP is Zacks' proprietary methodology for determining which stocks have the best chance to surprise with their next earnings announcement.

Pokemon Go Boost

According to the company, their stores are among the best places for gamers to find and train Pokémon as many of their locations are also PokéStops and Pokémon Gyms nationwide. The company will also be hosting an August 1 Pokémon event to attract customers.

Last week, GameStop CEO told CNBC that sales in their 462 stores with Poke stops or gyms were up 100%. Merchandise sales were also up across the board.

Diversified and Growing Company

GameStop continues to maintain a dominant position in physical gaming market and grow its presence in digital gaming, collectibles and technology brand segments. While physical gaming is slowing down, digital gaming is picking up rapidly and GameStop’s focus on transitioning to the new business model will drive revenues going forward.

The company expects to derive 50% of their operating earnings from beyond physical games by 2019. Their collaboration with AT&T and Apple has also been quite beneficial. Spring Mobile is now the largest AT&T authorized retailer with more than 900 stores, while Simply Mac is the largest Apple premier partner with 76 stores.

Returning Capital to Shareholders

The company continues to return cash to shareholders via dividends and buybacks. Since 2010 they have reduced their outstanding shares by 37% and increased dividend payout five times. Their current dividend yield is 4.74%.

The Bottom-Line

In addition to a top Zacks Rank, the stock looks very good on a couple style metrics too, with Zacks Style Score of “A” for both Value and Momentum.

The company currently trades at a multiple of 7.78X forward earnings making it a great value stock.

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