Circuit City stock jumps on Divx talk

Shares of Circuit City jump after an analyst says Viacom's Blockbuster may invest in the retail chain's Divx division.

RICHMOND, Virginia--Shares of Circuit City rose more than 12 percent today after an analyst said Viacom's Blockbuster may invest in the retail chain's Divx division.

Divx, a technology that allows a no-return system for renting videos, may get the Blockbuster investment in a few weeks, Merrill Lynch analyst Peter Caruso said in a report. Circuit City shares rose more than 8 points past 77 in midday trading.

The retail chain has spent about $200 million on Divx and has been seeking outside financing to cut its losses. The company said this month the division will reduce fiscal fourth-quarter earnings about 31 cents a share.

"If the Blockbuster investment in Divx were to occur, it would bode well for Circuit City stock," said Caruso, who raised his price target on Circuit City to $100 from $85.

Caruso also said the chain's sales this month are likely to be higher than expected. Circuit City says it has seen strong demand for DVD players, phones, and other digital products that replace older analog technology.

Circuit City, which also operates auto retailer CarMax Group, said two weeks ago that it expects earnings of $1.23 to $1.25 a share from its main retail electronics business for the quarter ended February 28.

With losses from Divx and CarMax, Circuit City said it expects to report earnings of 83 cents to 85 cents a share by early next month. At the time, it was expected to earn 82 cents, the average estimate of analysts polled by First Call.

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