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BBI.B = multi-bagger in the making IMO

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Rawnoc   Sunday, 08/09/09 03:47:52 PM
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BBI.B = multi-bagger in the making IMO

Analyst estimates are for EPS +.19/share for 2009, and +.21 EPS for 2010 for a very tiny PE. Book value .463/share. A PE of even 10 should put the stock at $2.00.

Why I think the street has BBI.B all wrong and why I think it will be a multi-bagger (#s 1-7 taken from Q1 CC):

(1) Weak title lineup industry-wide hurt Q1. This has all drastically changed since May 2009. There is a false belief that competitive pressures from Netflix & Redbox is hurting blockbuster's results, but, for example, in Canada they have no significant by-mail nor vendor competitor (i.e. -- no Netflix nor Redbox) yet same-store sales were down roughly the same there as the USA. Biggest competitor was actually theatre itself in Q1 which saw all time record attendance up 14%, which is 3 million more people every week this year, with 7 films grossing $100 million+ a piece vs. just 2 films last year combined with weak rental titles in the quarter. Those blockbuster titles began to hit the rental stores in May and will continue throughout the rest of the year giving blockbuster a strong title lineup Q2 onward.

(2) Beginning in Q2, new "choose your own pricing" plans in the stores after testing for 12-18 months various pricing models has resulted in greater traffic in all markets.

(3) $200 mil reduction in SG&A expected in 2009 which includes renegotiated lower rents on real estate.

(4) Management expects the recession to positively impact sales as people based on historical recessions as new customers tend to "rediscover" the value of renting over time.

(5) 3,000 Blockbuster kiosks to be launched by end of 2009 that would have double the unit capacity of Redbox and may offer games.

(6) Weak dollar Q2 will help foreign operations. Q1 was hurt by the strong dollar.

(7) Q3 will have no olympics viewership to compete against this year.

(8) The BBI.B shares are much more attractively priced than the BBI shares which are identical in every which way and are entitled to the same exact earnings per share, potential dividends, and potential buyout premium. From Blockbuster's own website:

http://www.b2i.us/profiles/investor/QAForumView.asp?QAID=11204&GoTopage=1&BzID=553&sm_quote_field=BBI&Category=1398

What is the difference between BBI and BBI.B?
Blockbuster has two classes of common stock, both of which have voting rights: Class A, which is entitled to one vote per share, and Class B, which is entitled to two votes per share. Blockbuster’s Class A common stock began trading on August 11, 1999, following Blockbuster’s initial public offering. Blockbuster’s Class B common stock began trading on October 14, 2004 in conjunction with Blockbuster’s divestiture from Viacom. There is no difference between the two classes except for voting rights; they generally trade within a close price range of each other. There are, however, far more shares of Class A common stock outstanding, so most of the trading occurs in that class.

(9) Carl Icahn is on the board of directors and owns a big chunk of both classes of shares. A potential wild card is if he decides to try to wrestle for control of the company like he's done with so many other companies, the first thing he would likely buy are the BBI.B shares since they get double the votes yet are priced cheaper.

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Conclusion -- IMO, BBI.B is going to smash analyst estimates over the next 1-3 quarters and explode.


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