Circuit City Heads Towards Zero

No Lows

Circuit City (CC) tumbled to all new lows yesterday, down 21.26%, as the market got scared about an upcoming meeting coupled with Street views that their earnings will be terrible. Goldman Sachs sent shivers through the spines of investors on Monday when they predicted that retailers selling non-essentials would have bad quarters due to these difficult, cash strapped times for consumers.

Analysts Views are Bleak

Circuit City has been the pun of many jokes due to its inability to compete with Best Buy (BBY) and even Wal-Mart (WMT), which has moved into electronics aggressively over the last couple of years. And analysts aren’t showing any hope that the company will turn around any time soon.

13 of the 23 analysts rating the current quarter have downgraded the company’s expectations over the last 90 days. An expected bleak loss of $0.47 has turned into a full $1.01 loss as of yesterday. And the yearly expectations are even worse. Falling from an expected loss 90 days ago of $0.94 to a now very ugly loss of $2.16.

Blockbuster Losing Interest

The one hope for Circuit City was an interest by Blockbuster (BBI) to combine into a company that could aggressively go after both Best Buy and Netflix (NFLX) and possibly win. But the sour retail figures from the electronics seller may just scare off the video renter Blockbuster and leave the company nowhere to turn.

The Trade

Surprisingly, after the horrific day yesterday, there were options buyers on the Call side for Circuit City. July $5 Strike Calls and October $5 Strike Calls saw some good action on the terrible performance from the stock (which made a new 52-week low). I think there’s still more downside pressure on the stock which has an 18% short interest. Wait for the meeting on Tuesday and if there’s no incredible news to rally the stock, you could go short a month or two for a trade.

Disclosure: None

Comments

[buyforeclos...:]

Now there are several suitors? If so and 5- 6 bucks is the minimum..at current price you can make a bundle here. I dont think shorting it would be smart right now

2008 Jun 24 09:31 PM

[xCustomer:]

After CC rewarded the loyalty of its workers by firing 3000 of its highest paid and presumably most loyal employees just to save a few bucks, I vowed to never, ever shop there again. I, and others I know, haven't set foot in a CC store since. If they go under, it can only be good for the people toiling under their roof now with the misguided impression that they have a future. Better those employees look for a job now with a company that cares about them than invest a large portion of their professional lives and receive the same reward as their predecessors.

2008 Jun 25 06:26 PM

[billddrummer:]

Anyone who did a short call back when this article appeared has made good money, since the stock fell to $2/share immediately after BBI pulled its bid.

2008 Jul 15 01:51 PM