RadioShack Corp (NYSE:RSH)

CAPS Rating: 1 out of 5

The Company primarily engages in the retail sale of consumer electronics goods and services through its RadioShack store chain and non-RadioShack branded kiosk operations.


Player Avatar Crosshair (97.02) Submitted: 7/29/2009 12:05:56 PM : Outperform Start Price: $14.72 RSH Score: -207.18

I am going against the Fool Community on this one and rating Radioshack (NYSE: RSH) a thumbs up. Admittedly, the company is facing tough competition from familiar names such as Wal-Mart and Best-Buy Corp. Evidence that competition is fierce is witnessed when the company was unable to capitalize on the Circuit City bankruptcy to win over market share. But, I am here to argue that the stock is quite attractive despite the troubles faced by the underlying business.

I’ve assumed the company will continue experiencing difficulties well into the future. Top-line growth for 2009 is pegged at a negative 5.00% from the previous year. I project no revenue growth for the next 4 years, after which growth will return, at the rate of overall economic expansion, or 3% (yes, I foresee that once we escape the current crisis, we will again consider “normal growth” to be around 3%). My picture is particularly gloomy when compared to Wall Street analysts which estimate future earnings growth of approximately 9.5% per annum. EBIT margins are kept at historical levels (6.69%) in spite of improvements on this front from recent cost cutting initiatives. Further, non-recurring revenues from the sale of converter boxes stemming from the transition of full-power television broadcasting in analog format to now solely digital format in the United States were left out of my top-line projections. Incidentally, I have not adjusted for the company’s recent deal with T-Mobile, which will likely offer a lift to revenues.

After adjusting for capital expenditures which are assumed to track historical averages, calculated as a portion of total revenue, and investment in working capital, free cash flows clock in at roughly $200 million per year. After discounting these to present time and adjusting for balance sheet items, I calculate an intrinsic value of $22.42 per share, offering a comfortable 29% margin of safety at today’s price. Keep in mind, the intrinsic value is priced without any prospect for growth until 2013. Should the company’s new advertising efforts with the 7 time winner of the Tour de France, Lance Armstrong, gain traction, it could offer tremendous upside potential for this stock.

Mr. Market might have just chucked this stock in the bargain bin…

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