Citi has been a forceful, lonely bull for months on Blockbuster (BBI). For reasons that are mysterious to us, the bank continues to anticipate 200%+ returns on the stock. Now that the Circuit City (CC) deal is dead, Citi reiterates their thesis and sees the company benefiting from:
- cost reductions
- improvements in Total Access [movies by mail] profitability
- a strong title-line up
- share gains from in-store competitors
- “Rock the Block” facelifts that are starting to generate incremental sales.
One odd tidbit though: Citi never incorporated the Circuit City bid or the probability of the merger into their estimates and price for BBI.
And here’s another: We have heard no argument that persuades us that Blockbuster will do anything but gradually go out of business over the next few years. Except for a short-term trade or liquidation sale, we can’t imagine going long the stock. If Citi or Blockbuster can explain why consumers will still trek to a video store to rent DVDs in five years (or how BBI will convert itself into an iPod retailer in the meantime), we’ll be glad to listen. For now, however, we’re scratching our heads.