Sterne Agee Comments On GameStop Investor Day

According to Sterne Agee, GameStop (NYSE: GME) investor day provides roadmap for transformation.

Sterne Agee reported that it thinks at the company's first-ever investor day last Friday, management made its strongest case yet for the future relevancy of its business. “The just announced digital acquisitions (Spawn Labs and Impulse) coupled with the company's existing moat in the new and pre-owned businesses should lead to growth in top line, bottom line and free cash flow in the foreseeable future, rather than the decline many expect. Management set out various 2010-2014 targets such as 6% CAGR in top line (including 50% CAGR in digital), 7% CAGR in net income, and 10% CAGR in free cash flow, etc. We think if management can come anywhere close to achieving these targets, the stock will likely work well. The investor day should have at least convinced investors that management is not in denial of the ongoing digital shift in video games but rather wants to aggressively participate in it. At the same time, management is focused on optimizing and de-risking its real estate portfolio. Finally, management is committed to generating strong free cash flow and ROIC. We estimate $2B in free cash flow generation over the next four years (2/3rd of current market cap) and 400 bps expansion in ROIC from 13% to 17%. Reiterating Buy and $26 price target.”

GameStop closed on Friday at $22.92.