(Adds commentary, share prices, background)<\/p>\n
March 24 (Reuters) – Jefferies Financial Group Inc raised its price target on GameStop Corp nearly twelvefold on Wednesday, breaking ranks among the rest of Wall Steet which has insisted that a Reddit-fueled frenzy in the stock defies reason.<\/p>\n
Jefferies analysts Stephanie Wissink and Anna Glaessgen raised their price target on the video game retailer to $175 a share from $15, citing the company\u2019s pivot to online sales.<\/p>\n
\u201cOur thesis is simply that rebalancing sales away from video game software\/hardware will deliver superior gross margins,\u201d the Jefferies analysts wrote in their report.<\/p>\n
\u201cIf the company successfully sheds its retail heritage and morphs into a digital commerce,\u201d its valuation could rival other purely online businesses, they said.<\/p>\n
The analysts stated in the report that their firm\u2019s investment banking arm had been hired by GameStop for a potential stock sale plan. Brokerages typically have a strict separation between equity analysts covering companies and investment bankers working for them.<\/p>\n
The Jefferies analysts also disclosed that the firm owned through its affiliates or subsidiaries 1% or more of GameStop\u2019s common equity.<\/p>\n
Jefferies did not respond to requests for comment, while a GameStop spokesman declined to comment.<\/p>\n
Jefferies\u2019 stock price target for GameStop is far higher than the $25 median among seven analysts covering the company, according to data from Refinitiv. GameStop shares ended trading down 33.8% on Wednesday at $120.34, after the company said it was evaluating the possibility of a stock sale.<\/p>\n
GameStop has found itself at the epicenter of an unprecedented trading frenzy since January, as amateur investors organizing on Reddit and other social media sites bet against Wall Street hedge funds that shorted the Grapevine, Texas-based company\u2019s shares.<\/p>\n
Jefferies was tapped by GameStop in December to handle a potential stock sale, though the retailer disclosed on Tuesday that no shares had yet been sold as a result. GameStop also said it was considering upsizing the stock sale program.<\/p>\n
Jefferies\u2019 \u201cupside scenario\u201d for GameStop sees factors such as the company successfully shifting its sales mix towards collectibles, accessories and digital, the analysts\u2019 report stated.<\/p>\n
The analysts came up with their new price target by valuing the company using a sales multiple, rather than earnings before interest, taxes, depreciation, and amortization. They assumed GameStop\u2019s e-commerce business would grow sharply, with the transfer of 50% of its 2020 store sales online, according to the report.<\/p>\n
The analysts kept a \u201cHold\u201d rating on the stock.<\/p>\n