We are upgrading our recommendation on
) to Neutral backed by its extremely low level of current
valuation, which plunged more than 82% in the last year. In our
view, the company is currently fairly valued and provides limited
chance for further downslide of its stock price.
Meanwhile, the nightmare of Radioshack persists as it
continues with its disappointing performance. Third-quarter 2012
financial results were well below the Zacks Consensus Estimates.
Adverse product-mix toward low-margin devices and a volatile
macro-economic scenario in the U.S. are taking a toll on the
RadioShack's core consumer electronics retail business is on a
secular downtrend. Consumers increasingly prefer online
purchasing to visiting retail stores. Loss of foot traffic has
severe negative impact on RadioShack's business. Earlier,
management suspended dividend payment in order to reduce the
company's debt burden.
A major near-term concern for RadioShack is the significant
decline in its gross margin. In the third quarter of 2012, gross
margin was 36% compared with 42.8% in the prior-year quarter.
This was mainly due to an unfavorable sales mix toward lower
margin smartphones and other mobile devices coupled with a higher
percentage of mobility sales due to expansion of kiosks within
Importantly, RadioShack announced that this trend will
continue in the near future due to revamping of the core retail
electronics segment and deployment of wireless kiosks inside
Target stores. We believe RadioShack lost its market leadership
as a high-margin device retailer and is eventually turning out to
be a low-cost low-margin device supplier.
RADIOSHACK CORP (RSH): Free Stock Analysis
TARGET CORP (TGT): Free Stock Analysis Report
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