GameStop Pops 6% As Activist Hestia Capital Urges Shareholders To Vote For Change

Activist firm Hestia Capital is urging shareholders to vote for change and elect its two nominees to the board of directors when GameStop (GME) holds its annual shareholder meeting in mid-June. The stock is currently trading up 6% in pre-market trading on Monday.

The firm, which owns approximately 7.2% of GameStop shares, also sent shareholders a letter setting out why it believes GameStop’s recent board refreshment is insufficient.

According to Hestia, too many GME directors come from traditional retail backgrounds and “the Board must add stockholder-aligned directors that have the financial acumen, turnaround experience and stockholder perspective to drive real change at GameStop.”

Looking forward, Hestia also highlighted the steps it believes the company must take to maximize value for stockholders, writing “the nominees will push the Company to reduce its bloated cost structure, fix misaligned executive compensation, quickly address liquidity concerns, focus on optimizing its unique gaming assets, and create a positive narrative about the Company’s future.”

Indeed, GME stock has plunged 22% year-to-date, and analysts have a bearish outlook on the stock’s prospects. Out of 5 analysts covering GME, 3 rate it as hold, and 2 say sell- giving the stock a Moderate Sell consensus. More worryingly perhaps is that the average analyst price target also suggests shares can pullback a further 20%. (See GME stock analysis on TipRanks).

Wedbush analyst Michael Pachter recently downgraded GameStop from buy to hold, citing “the significant headwinds that GameStop faces from coronavirus and the challenging current-gen video game retail marketplace.”

He also lowered his 12-month price target per share to $4.25 from $8.00 to reflect these factors. “We expect shares to trade at a compressed EPS multiple until GameStop can slow the rate of decline in its core video game business” the analyst said.

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