It appears that movie rental operator Blockbuster, Inc. (NYSE/BBI) has finally turned the corner and may attract more buying after years of struggling and underperforming the market. For those of you who are not familiar with the past misfiring of the number one movie rental operator in the United States, it has been a long hard lesson in mismanagement and failure to recognize new trends.
A few years back, Blockbuster failed to fully comprehend the importance of the market for online movie rentals, instead focusing on its brick-and-mortar stores. The problem was that operating physical stores was expensive, while online rentals were much cheaper. Online rental leaders like Netflix, Inc. (NASDAQ/NFLX) realized this and grew this business to become the market share leader in this area. Blockbuster, on the other hand, failed miserably and has been playing catch-up ever since. The positive is that Blockbuster appears to be making strides versus Netflix.
Blockbuster recently jumped on news that its first quarter earnings were $0.06 above the average Wall Street EPS estimate, although revenues of $1.39 billion were short, versus the $1.44 billion predicted by analysts. The decline was attributed to store closures and the sale of stores, which I like, as the company focuses more of its efforts on its online rental business. In the first quarter, the key domestic same-store revenues were up 2.9% year-over-year.
Going forward, I like the company’s focus on its online model. Also, Blockbuster is looking at buying Circuit City Stores, Inc. (NYSE/CC) for about $6.00 a share in a deal valued at over $1.0 billion. The move is an attempt by Blockbuster to develop a “game-changing retail concept,” where it would have an electronics presence to complement its movie rental business. I was surprised by the announcement and unsure if this proposed move makes sense for Blockbuster, which should focus on its online rental business. Circuit City Stores is a money loser and could make the situation even worse for Blockbuster, as it attempts to turn around. Based on the current $5.00 share price of Circuit City, investors do not feel the deal will pan out.
Perhaps Blockbuster has made another error in its analysis? Only time will tell, but you’ve got to wonder about this move.
Blockbuster Stock Bouncing Back was last modified: January 24th, 2012 by George Leong, B.Comm.
George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »
Forecasts Aug. 31, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 31, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)