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Circuit City, Almost To Zero

Jun 23 2008

Circuit City, Almost To Zero

No Lows

            Circuit City tumbled to all new lows today, down 21.26% as the market got scared about an upcoming meeting and 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 the difficult and 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 and even Wal-Mart 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.

            Thirteen of the twenty three analysts rating the current quarter have downgraded the company’s expectations over the last 90 days. An expected bleak loss of .47 cents has turned into a full $1.01 loss today. And the yearly expectations are even worse. Falling from an expected loss 90 days ago of .94 cents to a now very ugly $2.16 loss.

Blockbuster Losing Interest

            The one hope for Circuit City was an interest by Blockbuster to combine into a company that could aggressively go after both Best Buy and Netflix and possibly win. But the sour retail figures from the electronics seller may just scare off the video renter Blockbuster and leave the company no were to turn.

The Trade

            Surprising, after the horrific day today, 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 today. I think there’s still more downside pressure on the stock which has an 18% short interest. Wait for the meeting on Tuesday to complete and if there’s no incredible news to rally the stock, you could go short a month or two for a trade.

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