We upgrade our recommendation on RadioShack Corp. (RSH) to Neutral based on its current valuation, which dropped by nearly 48% last year and is currently trading at the low-end of its 52-week price range. We believe this low-valuation level will provide a cushion for further downslide of the stock price. Meanwhile, the nightmare of RadioShack persists as the company continues with its disappointing performance.
Precipitous decline of the signature and consumer electronics retail businesses, adverse product-mix toward low-margin devices, and a volatile macro-economic scenario in the U.S. are taking a toll on the company’s financial results. Weaker-than-expected growth of the mobile platform and growing marketing expenses are other near-term concerns. Nevertheless, a silver lining for the company is its newly formed business deal with Verizon Wireless, which is a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group plc. (VOD). Furthermore, RadioShack recently raised its shareholders’ wealth significantly.
RadioShack is one of the most experienced and trusted consumer electronics specialty retailers in the U.S. The company has re-launched its “The Shack” brand of retail store chain and has put emphasis in wireless technology in order to stay aligned with the future trends. The wireless category currently represents half of RadioShack’s total sales. RadioShack generated increased revenue from AT&T postpaid wireless business. The company will now offer a broad range of products from the three largest nationwide wireless carriers, namely Verizon, AT&T Inc. (T) , and Sprint Nextel Corp. (S). We believe new products, such as smartphones and tablets offered by these carriers with high-margin profits will boost the company’s revenue going forward.
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