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Is GameStop (GME) Likely to Beat Earnings Estimates in Q2?

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We expect GameStop Corp. (GME - Free Report) , the video game and entertainment software retailer, to beat expectations when it reports second-quarter fiscal 2014 results on Aug 21. In the last quarter, it posted a positive surprise of 3.5%.

Why a Likely Positive Surprise?

Our proven model shows that GameStop is likely to beat earnings estimate this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 or 2 or 3 for this to happen. GameStop has the right combination of two key components. 

Zacks ESP: GameStop currently has an Earnings ESP of +10.53%. This is because the Most Accurate estimate stands at 21 cents, while the Zacks Consensus Estimate is pegged at 19 cents.

Zacks Rank: The company carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings estimates. The Sell-rated stocks (Rank #4 and 5) should never be considered going into an earnings announcement.

The combination of GameStop’s Zacks Rank #3 and +10.53% Earnings ESP makes us confident of an earnings beat this release.

What is Driving the Better-than-Expected Earnings?

GameStop is well poised to take advantage of the growing market for video game products and PC entertainment software. The company continues to branch out and has evolved as a mixed retailer of physical and digital gaming as well as electronics products. The company’s venture in digital, iDevice and gaming tablet businesses would be accretive to its upcoming results. The company’s buy-sell-trade model of selling new games and buying back used games and PowerUp Rewards program make it a popular destination for shopping.

In the last four quarters, GameStop outperformed the Zacks Consensus Estimate by an average of 42.5%.

Stocks that Warrant a Look

Here are some other companies you may want to consider as our model shows that these have the right combination of elements:

Chipotle Mexican Grill, Inc. (CMG - Free Report) has an Earnings ESP of +0.79% and a Zacks Rank #1 (Strong Buy).

Abercrombie & Fitch Co. (ANF - Free Report) has an Earnings ESP of +20.00% and a Zacks Rank #2 (Buy).

Home Depot Inc. (HD - Free Report) has an Earnings ESP of +1.39% and a Zacks Rank #3.

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