On an otherwise up day for the equities market, four big-name retailers are in the red: GameStop Corp. (GME), J.C. Penney (JCP), Sears Holdings Corp. (SHLD) and Target Corp. (TGT). And with Black Friday just a few days away on Main Street, it’s natural that some buyers may be sniffing around for bargains on Wall Street.
But in reality, only one of these stocks is a buy at current prices, in my book. Now J.C. Penney shares did perk up yesterday after the department store chain issued a slightly sunnier Q4 outlook. However, the fact remains that the company has missed analyst earnings estimates by a wide mile for the past several quarters, so I’m not so optimistic. As for Sears and Target, both companies disappointed shareholders with their third-quarter earnings results.
It’s a different story with GameStop, the largest video game and entertainment software retailer in the world. Today, GME shares fell to a three-month low after the video game retailer released Q3 results. While GameStop swung to a profit last quarter, the company did guide its fourth-quarter forecast below the Street view. While analysts are calling for $2.15 EPS, GameStop expects earnings in the range of $1.97 to $2.14 per share.
While some have taken this as a sign to take profits, I wouldn’t be so quick to sell. For one, GameStop has a strong history of surpassing analyst expectations. Helping to boost forward EPS is the company’s new $500 million stock buyback program, which it just approved today. GameStop also declared a quarterly dividend of $0.275 per share (shareholders of record on December 4 will be paid on December 19).
Also, there are a number of exciting video game console launches coming this holiday season that will help the retailer. Just last week, Sony Corp.‘s (SNE) PlayStation Four hit shelves and more than one million of the consoles sold in the first 24 hours. Tomorrow, Microsoft Corp.‘s (MSFT) Xbox One goes on sale. Preliminary sales numbers indicate that demand will be strong for the two platforms for months to come. GameStop accounts for more than half of these two companies’ video-game software sales.
This holiday shopping season, you may decide to pay a visit to J.C. Penney, Sears or Target to pick up gifts for your friends and family. But while these retailers may be good for a stocking stuffer or two, I advise that you leave their stock where they belong—on the shelf. Of the four retailers, GME is the only one that deserves a closer look.