RadioShack in Neutral Zone - Analyst Blog

By Zacks Equity Research,

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We are upgrading our recommendation on RadioShack Corp. ( RSH ) to Neutral based on its current valuation, which plunged more than 75% last year and is trading at the low-end of its 52-week price range. We believe further stock price downslide is a remote possibility at this stage.

Nevertheless, the nightmare of RadioShack continues to persist. Firstly, the company's core consumer electronics retail business is on secular downtrend and is unlikely to be revived in the near future. Secondly, the customers increasingly prefer online purchase instead of visiting brick-and-mortar retail stores. Loss of footfall is taking a toll on RadioShack's mobility business, on which the company is banking for its future growth. Thirdly, instead of computers and cameras, majority of consumers prefer tablets and smartphones, which are less profitable for the retail industry.

RadioShack is facing bottom-line pressure for its lucrative wireless platform. In the previous quarter, the company's net income plunged 74.5% year over year. Moreover, the company faced weak bottom line due to costs associated with transition from an adverse product mix toward low-margin smartphones, T-Mobile to Verizon Wireless partnership, and underperformance of its businesses with Sprint Nextel Corp. ( S ). Verizon Wireless is a joint venture between Verizon Communications Inc. ( VZ ) and Vodafone Group plc. ( VOD ).

Although management remains confident of achieving future business from Verizon, it believes that Verizon business needs more consumer awareness and spend increasing amount for marketing. We expect the wireless division revenue to remain almost same in 2012. RadioShack also forecasted its net income to decline further in 2012.We believe overall turnaround may take more time than previously expected.

RADIOSHACK CORP (RSH): Free Stock Analysis Report
SPRINT NEXTEL (S): Free Stock Analysis Report
VODAFONE GP PLC (VOD): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: RSH , S , VOD , VZ

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