Are video games recession-resistant? Citi seems to think so and is predicting 70%+ returns for GameStop (GME).
Citi is undeterred by overall macroeconomic weakness and a battered consumer. The bank continues to see too many positive catalysts for GME, including the gaming extravaganza E3, to even give other concerns a second thought.
E3 is a Catalyst for GME:
E3 will be held in Los Angeles from July 14 to 17…E3 will set the tone for the immediate future and should support our view that the title slate is robust, with 17 major titles and 15 notable titles slated for 2H08.
As the premier retail destination for video gaming, we look for GME to significantly benefit from the strength of the gaming cycle, which should be confirmed at E3. The ever increasing number of casual gamers coupled with unprecedented platform diversity has resulted in a unique and protracted gaming cycle. Hardware cuts and new title announcements should continue to drive both near-term and long-term earnings for GME.
Other factors that Citi believes could help GameStop skyrocket include the increasing likelihood of an actors strike and GME’s 25% EPS growth potential over the next couple of years.
Citi maintains BUY on GameStop (GME), target price $66.
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