JPMorgan Maintains Neutral on Blockbuster

From Analyst Barton Crocket
Blockbuster reiterated previously provided CY08 adj. EBITDA guidance of $300m-$315m. Flowing the 3Q08 results through our model results in a $36m reduction to our CY08 revenue estimate to $5,412m. Our adj. EBITDA estimate is unchanged at $313m, while EPS is up $0.02 to $0.15 due to $5.8m of income from "other items" reported in 3Q. We are leaving our CY09 adj. EBITDA estimate unchanged at $319m. Retain Neutral. At 3.4x adj. EBITDA, and a P/E of 7x, valuation is arguably cheap, but so is much of the market. The debt refinancing question may continue to weigh on the shares near term, although we believe cash flow generation should eventually ease those concerns. Long-term secular concerns remain a constant overhang for the video rental group, in our view.