Pali Research Upgrades Blockbuster (BBI) to Buy

July 22, 2008 8:46 AM EDT

Pali Research upgrades Blockbuster (NYSE: BBI) from Neutral to Buy with a $4 price target.

The firm said, "Blockbuster put up an impressive Q1 but, with a potential Circuit City (NYSE: CC) deal hanging like a black cloud over the stock, investors did not care. Even as the deal has been called off, the stock has not rallied to pre Circuit City announcement levels, despite improved fundamentals. We think investors will need to see continued operational improvement and gain confidence that BBI will not try to conquer any other ailing retailers (strategic sense or not). As we see another potential acquisition as unlikely, we believe BBI will get credit for operational improvement over the next few quarters."

The stock is trading less than 4x the firm's F2009 EBITDA estimate of $350 million. Therefore, the firm believes that 1-2 quarters of improvement (and no new deals) will be enough to move the stock back to the $4 range.

Blockbuster, Inc., together with its subsidiaries, operates and franchises entertainment-related stores in the United States and internationally.

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