Bharper

Blockbuster Offers Big Upside Potential

This is definitely a riskier play. But in terms of being a declining business, I think it is more like a RBOC type of attrition than, say, Kodak film where the substituting technology will all but destroy the traditional business. Certainly there is competition in many forms, but there is definitely a place for the traditional rental market.

Blockbuster has been this levered before, and they were able to pay down their debt in a few years. They have cut total debt by about $270 million in the past year.

Also, book value is sort of depressed since they paid a $5/share dividend to Viacom. So this sucked $920 million out of equity.

I have a base target of $10. I think the co can generate free cash flow of at least a buck a share, and that is with the current debt load.