Next phase of Blockbuster remodel is paramount: boosting its share price

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This entire column could be filled simply by listing all the new things Blockbuster has been trying in recent months. The only constant, it seems, has been its declining stock price.

Expect that to change, too.

Wall Street analysts who cover the stock are, on average, predicting that it will rise 93% to $5.31 in the next 12 months. Even the most bearish analyst is predicting that shares will climb from Tuesday's $2.75 close to $3.

Blockbuster's most recent initiative was to begin selling video games and the consoles that play them at its corporate-owned U.S. stores. It seems a natural given that Blockbuster has been so successful at renting games.

The company also has been evaluating some cool-looking "concept stores" designed to keep customers who venture into them lurking around longer.

A "games" concept, for example, includes an area for customers to play the latest video games on 62-inch TV screens; a "kids" concept keeps children busy with carefully selected music videos, film clips, toys and a "Play Zone" for taking photos with kid-friendly movie characters.

Blockbuster also is testing rental kiosks, which companies like Redbox already have proved can be popular. It also is secretly exploring a partnership in the cable channel to be launched by MGM, Viacom and Lionsgate and, also secretly, considering a set-top box for the digital distribution of movies.

It's also pushing the Blu-ray Disc more aggressively than just about any other entity save Sony by installing kiosks in the center of its stores featuring 42-inch high-definition TV screens playing Blu-ray movies.

The company also raised the price of its online service that competes with Netflix, thus making it profitable, and has been pushing in-store subscription services -- one for movies, another for video games.

Investors, though, have been yawning, and the stock is down 38% since Blockbuster named Jim Keyes -- the architect of most of the aforementioned efforts -- its new CEO on July 2.

Keyes gave himself extra incentive to turn around the stock price by purchasing $3 million in stock nine months ago at $4.22-$4.55 per share. It's one reason that some on Wall Street remain bullish.

He also has a reputation to uphold. Before he took over at Blockbuster, Keyes presided as CEO of 7-Eleven for five years, when its stock moved from $9 to $37.50 a share.

The biggest concern of late is Blockbuster's desire to purchase Circuit City for more than $1 billion, but Wall Street's bulls are treating that plan more like a trial balloon.

"We believe that investor concerns may cause Blockbuster to abandon this proposal," said Wedbush Morgan analyst Michael Pachter, one of Blockbuster's most consistent bulls. He has a $7 target on Blockbuster, reflecting a multiple of 18 times the company's projected earnings of 40 cents per share next year.

Another bull, Alden Mahabir of Utendahl Capital Partners, also thinks the transaction won't happen given Circuit City's lack of cooperation thus far. This despite an offer that's 54% better than where its stock was trading.

The analyst has a $5.50 target on Blockbuster shares.

Mahabir thinks that the alleged cable channel investment makes more sense than a Circuit City acquisition given that the unnamed channel could give Blockbuster digital rights to some exclusive content.

One of the best reasons for being bullish on Blockbuster, though, might have less to do with its various permutations than with a sudden lack of competition in the old-fashioned business of renting DVDs to in-store customers. Struggling Movie Gallery, which also owns the Hollywood Video chain, is shutting down at least 950 locations, leaving it with 3,490 stores in the U.S. and Canada compared with 4,800 Blockbuster stores in the U.S. alone.

Bulls and bears will have all this -- and more -- to consider when Keyes hosts a quarterly earnings conference call May 15.

Paul Bond can be reached at paul.bond@THR.com.
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