USA: Question is no longer 'if, but when,' according to KeyBanc Capital Markets

Analyst: Circuit City will go bankrupt

Circuit City will enter Chapter 11 bankruptcy protection by as early as the first quarter of 2009 – and is unlikely to recover – according to research analyst at KeyBanc Capital Markets, Bradley Thomas.

Writing in his research note, he said: "We believe a Circuit City bankruptcy has become a question of when rather than if. We now expect bankruptcy in 2009, perhaps as early as the first quarter."

He warned, however, that the ‘when’ part of the assessment would be dictated by vendors, saying that should one vendor pull its products from Circuit City, others would likely follow, speeding up the likelihood of it filing for Chapter 11.

He added that: "We believe the likelihood that Circuit City can emerge from bankruptcy and its remaining number of stores post-bankruptcy are diminished by the weakening environment."

It isn’t all bad news according to Thomas, though. Best Buy is likely to benefit from the demise, suggesting that the extra custom from ex-Circuit City customers would be large enough to stem the effects of falling prices and lower customer spend.

He added that Best Buy could see its shares rise by as much as 37 cents per share if Circuit City was forced to close 300 of its 700 stores. At the time of writing, shares in Best Buy were 27.13 cents a share vs 0.40 cents a share for Circuit City.

Source: StreetInsider

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