A Second Look: Blockbuster makes back gains on earns

On Thursday, the Dallas-based movie rental chain reported it swung to a first-quarter profit of 20 cents per share. The results surpassed the 15 cents-per-share estimate of analysts polled by Thomson Financial.

Blockbuster, which is trying to buy electronics retailer Circuit City Stores Inc., saw its stock climb in early Thursday trading but give up gains throughout the day.

By Friday, investors were back in a buying mood.

Citi Investment Research analyst Tony Wible lifted the company's price target to $8.50 from $8, saying its quarterly performance is proof that restructuring efforts are making headway.

Blockbuster has managed to improve cost control efforts, inventory management, product placement and fine tune its Total Access terms, which helped it to achieve stronger domestic sales during the quarter, he explained.

Total Access is a hybrid online and in-store video rental plan that lets customers rent videos online that are then mailed to them, but which can be exchanged in Blockbuster stores for other rentals.

While the potential Circuit City deal has been criticized by some analysts, Wible is not averse to the transaction. The analyst anticipates overlapping Blockbuster and Circuit City stores possibly combining into larger Circuit City stores, and envisions the deal providing Blockbuster with more revenue and cost savings.

He maintained a "Buy/Speculative" rating.

Jeffrey Logsdon of BMO Capital Markets was less optimistic on the potential Circuit City transaction, saying the bid is "outweighing Blockbuster's fundamental gains." He expects such pressure to last until the matter is resolved.

The analyst reiterated a "Market Perform" rating and $3 price target.

Shares of Blockbuster added 15 cents, or 4.9 percent, to $3.20 in morning trading. The stock has traded between $2.52 and $5.80 over the past 52 weeks, and is off 21 percent since the start of the year.