GameStop: Wedbush Upgrades; Stock Rallies

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GameStop (GME) shares are trading higher this morning after Wedbush Morgan analyst Michael Pachter lifted his rating on the video-game retailer’s stock to Outperform from Neutral. He also increased his price target on the shares to $34, from $29. The stock closed yesterday at $26.24.

Pachter simply thinks the stock is cheap: he notes that the shares are trading at 11x his estimate on January 2010 EPS of $3.05 a share, a discount to the company’s historic forward multiple, amid concerns about slowing comp stores growth, market multiple contraction and the likelihood of increased digital distribution.

But he’s not as worried about those things as some others on the Street, clearly. “We believe that GameStop’s current valuation is compelling, and we expect the company to benefit from several near-term catalysts, including hardware price cuts, a much improved software release slate and much easier industry sales comparisons,” he writes. Pachter adds that he expects the company to “comp above expectations for the next year.” (Not to digress, but when did comp become a verb?)

As for worries about competition in the used game market, where GME generates considerable profits, Pachter advises not to worry so much. He notes that Amazon.com (AMZN), Wal-Mart (WMT) and Toys ‘R Us all have started selling used games, but that “none has thus far been able to attract the core trade-in consumer,” which he defines as “unemployed boys.”

This morning, GME is up 79 cents, or 3%, to $27.03.