UBS Cuts GameStop Rating on Valuation Concerns

GameStop (GME) shares are off after UBS analyst Benjamin Schachter cut his rating on the shares to Neutral from Buy.

Schachter says he actually sees further upside for the video game retailer from here - he raised his price target on the stock to $65 from $56 - but not enough to maintain a Buy rating. He notes that GME shares (non sequiter: remember when GME was the symbol for Electronic Data Systems?) have more than doubled this year. “While strong sentiment, industry momentum and positive near-term catalysts should enable it to reach our price target,” he writes, “we see limited upside potential from here.”

Schachter says he expects third quarter results to be beat expectations, powered by strong demand for Halo 3, continued industry momentum in both software and hardware, market share gains and “more solid execution.” But he also thinks fourth quarter upside “may be more muted given already high expectations and tough comps” after the launch of the Nintendo Wii and Sony (SNE) Playstation 3 in last year’s fourth quarter.

Schachter seems torn about his call. “With virtually all aspects of our original thesis on the name intact, it’s difficult to downgrade the stock,” he writes. “However, given current valuation levels, we simply think there is limited upside potential in the share price from here.”