Blockbuster: Needham Initiates at "Hold"

On the heels of Netflix’s (NFLX) problems last week getting DVDs out the door to subscribers, Needham & Co. analyst Charlie Wolf initiated coverage this morning of Blockbuster (BBI) with a “Hold” rating. Wolf says that while the company is throwing lots of things at the wall to “see if it sticks,” it’s not clear the company will get the increase in same-store sales it needs to offset the drag on earnings from its 6,000 retail outlets. He did not offer a target price.

“Blockbuster’s major problem lies in its base of 6,000 stores,” writes Wolf. “The company’s challenge and opportunity is wrapped up in the relatively large fixed expenses entailed in operating its stores.” Blockbuster revenue barely covers the cost of running the stores, but even a modest tick up in same-store sales could “transform a basically break-even operation into a highly profitable one,” writes Wolf.

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