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Southwest Upgrades Blockbuster to 'Strong Buy'

Southwest Securities ugpraded Blockbuster (BBI) to strong buy from market outperform.

The movie rental company posted 17 cents fourth quarter earnings per share on 9.1% higher same store revenue.

Analyst Harry Katica says while fourth quarter earnings per share were a penny below his estimate, rental momentum picked up after Christmas, and has continued so far in the first quarter. In addition, Katica says a commitment to belt tightening and lower advertising should reduce operating costs, helping to partially offset an expected decline in gross margin that is a result of an increase in lower-margin retail sales.

Supported by a pickup in sales momentum, and a positive earnings per share outlook, Katica thinks a good deal of risk is eliminated. He set an $18 12-month target, based on 12 times his preliminary $1.50 2004 earnings per share estimate.

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