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Merrill Upgrades Circuit City to 'Buy'

Merrill Lynch upgraded Circuit City (CC) to strong buy.

Analyst Peter Caruso says the stock been weak over the last two days due to concerns Circuit City would undergo a heavy remodel campaign that would eat into profits. He sys when a company undertakes a remodeling campaign, it would usually take a charge to accountt for all extraordinary costs. Investors value retail stocks based on what happening to operating EPS, which would excluding the remodeling cost. The analysis of Circuit City's credit card receivables shows no change in trend with respect to bad debt accruals. Caruso thinks that a major improvement in operating cash flows over the last year suggests strong underlying EPS trends that don't justify the recent correction.

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