On January 17, we upgraded
) to Neutral based on the company's extremely low level of
current valuation and management's recent decision to terminate
its unprofitable deal with Target Corp.
Why the Upgrade
The stock price of RadioShack plunged more than 79% in the
last year, significantly underperforming the S&P 500 return
of 14.4% in the last year. The nationwide retailer of electronics
and mobile gadgets is currently trading at the low-end of its
52-week price range. With respect to several valuation metrics,
RadioShack is also trading at significantly lower multiples
compared to the S&P 500. We believe, the company is currently
fairly valued and provides limited chance for further downslide
of its stock price. RadioShack currently has a Zacks Rank #2
On January 14, ina major strategic move, RadioShack and Target
Corp. have agreed to dissolve their existing business
relationship. In 2010, RadioShack entered into an agreement with
Target to roll out Kiosks for wireless products in 1,500 discount
stores of the latter. However, ever since its inception, the deal
has been unprofitable for RadioShack. The company was managing
only the postpaid mobile business of Target, which is a
low-margin one. It has no access to high-margin prepaid mobile
business or the highly lucrative phone accessories business of
Target. We believe that termination of the Target deal will be a
blessing for RadioShack. According to management the agreement
will come to an end on April 8, 2013.
RadioShack has undertaken a global expansion strategy. In
April 2012, RadioShack announced a franchise deal with the
Malaysian conglomerate, Berjaya. Berjaya expects to open 1,000
stores over the next 10 years in several South-East Asian
countries including Vietnam, Malaysia and Thailand. In a bid to
tap the growing Asian market, RadioShack has joined hand with
Asian retailer Cybermart to open small retail outlets in China,
Taiwan, Hong Kong and Macau.
Other Stocks to Consider
Besides RadioShack, other stocks in the electronics retail
sector that are currently performing well include
GOME Electrical Appliances Holding Ltd.
). While Conns currently has a Zacks Rank #1 (Strong Buy),
Aaron's and GOME both have a Zacks Rank #2 (Buy).
AARONS INC (AAN): Free Stock Analysis Report
CONNS INC (CONN): Free Stock Analysis Report
(GMELY): ETF Research Reports
RADIOSHACK CORP (RSH): Free Stock Analysis
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