The brokerage firm started coverage with a "buy" rating on GME
Video game retailer GameStop Corp. (NYSE:GME) received a rare bull note this morning, with Jefferies initiating coverage with a "buy" rating and $18 price target. In the note the covering analyst suggested the company could evolve into a "hub for gamer connections, platform & accessory purchases, and fan culture products," while adding that GME's current valuation doesn't price in a successful business transformation.
GME shares have popped 0.5% to trade at $15.22 following the upbeat attention. While the move is modest compared to the equity's long-term descent, shareholders will likely take any good news they can get following a rocky few months that included a quick exit from former CEO Michael Mauler. But while the stock has taken back the 50-day moving average, the $16 level still looms large. This price point, which was a site of brief support back in November and consolidation from February to March, swiftly rejected GameStop's June breakout attempt.
Meanwhile, short interest remains elevated on the security, up 19.5% since early January and representing 44% of the total float. Going by average daily trading volumes, it would take these bears more than five sessions to cover their positions. And as was alluded to earlier, most other analysts are skeptical, with just two of the seven in coverage handing out "strong buy" recommendations as of Friday's close, and the average 12-month price target is just $14.55.
Looking at some options data, peak open interest for GameStop stands at the July 17 call, and data points to mostly buy-to-open activity there. While some of this activity could be from short sellers hedging against an upside rally from GME stock, "vanilla" bulls could be speculating on a breakout from the retailer.