GameStop Corp. (GME), the video game and entertainment software retailer, recently notified that its board of directors has authorized an additional repurchase of about $500 million, of which $300 million will be utilized to repurchase shares and $200 million will be spent to buy back Senior Notes in order to lower its debt level.
This share repurchase program follows a buyback program of $300 million announced in January 2010 and exhausted in second-quarter 2010. During the quarter, the company bought back 2,520,400 shares at $20.93 each, aggregating $52.8 million.
With signs of recovery in the economy, share repurchases have now become common among companies sitting on cash surpluses. These strategies not only enhance shareholders’ return, but also boost earnings per share and raise the market value of the stock. GameStop ended second-quarter 2010 with cash and cash equivalents of $289.3 million compared with $197.9 million in the year-ago quarter.
The Grapevine, Texas based company, GameStop, expects to generate adequate cash flows from operations in the coming years, to fund opening of new stores, improvements to existing stores, refurbishment upgrades, buyout plans as well as share repurchase program. The recent buyback program underscores the company’s target to improve return on invested capital by 400 basis points in the next four years.
Being the global leader in retailing software, hardware, and game accessories for video game systems and personal computers, GameStop is better positioned than its competitors for the economic recovery. The stock is poised to surge once the economy rebounds and demand improves.
Currently, we have a Neutral rating on the stock. Moreover, the Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, correlates with our long-term view.