Analysts at Wedbush have boosted their price target on GameStop Corp (NYSE:GME) after the video game retailer unveiled the pricing of its offering of $1.3 billion convertible senior notes.
The company said the conversion rate to the notes will initially be 33.4970 shares of Class A common stock per $1,000 principal amount of such notes.
Wedbush’s analyst noted that the initial conversion price of the notes represents a premium of approximately 37.5% over GameStop’s share price on March 27.
The proceeds from the offering will be used for general corporate purposes, including the purchase of Bitcoin in line with GameStop’s upgraded investment policy.
“Investors that purchased the bonds are paying a large premium to GameStop’s assets,” the analysts wrote.
“The company currently has around $4.8 billion in cash and the convert will bring its cash to $6.1 billion. Following the conversion, GameStop shares are valued at $10.7 billion ($21.73 x 491 million shares outstanding), a substantial premium to its cash balance.”
The analysts raised their price target to $13.50 from $11.50 and repeated their ‘Underperform’ rating.
“Our previous price target was based upon GameStop’s net cash (roughly $10.50 per share) and a going concern value of $1 per share. Net cash per share will rise to roughly $12.50 post the convertible note issuance,” they explained.
“Our price target reflects GameStop’s new net cash per share figure plus a going concern value of $1 per share.”
GameStop shares traded hands at about $22 on Monday, down 30% in the year to date.