RadioShack Corporation (NYSE: RSH) reported earnings for the third quarter the other day, and according to the bullet points of this article, the electronics retailer beat analyst expectations by three pennies. Earnings came in at $0.39 per share. And I say, so what?
Why do I say this? Well, to be honest, RadioShack has never been my favorite retail investment idea. No, I've never had a problem at any of the company's locations, but seriously, how often do you hear people talk about RadioShack? I don't hear many people talk about the place, I can tell you that. Best Buy Co., Inc. (NYSE: BBY), Wal-Mart Stores, Inc. (NYSE: WMT), Target Corporation (NYSE: TGT) -- these are the retailers people think of first when they think of electronics, fair or not. At least, that's what I've been getting lately. And here's an interesting wrinkle to the earnings report. Sales were driven by those digital converter devices that many households will need to use their television sets once digital broadcasting begins in February 2009. Not that this is an original observation, but when I read that, I immediately thought to myself "well, where does RadioShack go from here?" The company is going to find it tough to stand out among the crowd in the next few months. Brand equity is really going to come into play. The brand equities of the aforementioned competitors will aid them in bringing traffic onto their sales floors. When it comes to a day like Black Friday, which is the kickoff to the holiday shopping season, I think consumers will be most excited about the deals they can get at a Wal-Mart or a Target and not the ones they can get at a RadioShack.
Sure, that might sound obvious, but it's one of the reasons why I wouldn't want to put money down on RadioShack. The company's stock is near a 52-week low, but it's not a buy. Management is trying to improve its standing in the eye of the electronics consumer, but it'll be a long time before that happens. Besides, the bigger stores simply have more to offer both in terms of shopping experience and one-stop buying. There theoretically will always be a place for a RadioShack. But there's not a place for it, at least at this time, in my portfolio.
Disclosure: I don't own any company mentioned; positions can change at any time.
Goldman upgraded shares of BP Plc (NYSE: BP) to Buy from Neutral on valuation as they believe the recent pullback provides an attractive entry point.
VF Corp. (NYSE: VFC) was raised to Outperform from Neutral at Credit Suisse citing its acquisition platform and international growth. The company's target was increased to $100 from $88.
Deutsche Bank upgraded shares of Tenet Healthcare (NYSE: THC) to Buy from Hold and increased its target to $8.50 from $7 to reflect increased confidence in the company's ability to beat expectations over the next 12 months and reduce its net debt.
US Steel (NYSE: X) was raised to Sector Outperformer from Sector Performer at CIBC.
Merrill upgraded Schering-Plough (NYSE: SGP) to Buy from Neutral citing the company's better near-term pipeline outlook with two potential blockbusters to be approved over the next year. Schering-Plough's target was raised to $23 from $20.
Jefferies downgraded shares of Hologic (NASDAQ: HOLX) to Hold from Buy as they see limited near-term catalysts after the company reported a Q3 miss and lowered top-line guidance for FY08. The firm lowered their target to $24 from $28.
Baird downgraded California Pizza (NASDAQ: CPKI) to Neutral from Outperform as they see limited near-term upside given the uncertain 2H08/2009 outlook. The company's target was lowered to $15 from $17.
JP Morgan downgraded Jones Lang LaSalle (NYSE: JLL) and CB Richard Ellis (NYSE: CBG) to Neutral from Overweight due to the continued challenging economic environment.
Analyst initiations:
BC Capital initiated Dollar Financial(NYSE: DLLR) with an Outperform rating and $24 target. The firm likes Dollar's geographically diversified business and valuation.
Going into this morning's earnings announcement, analysts had been expecting to see the company show earnings of 26 cents per share, but the company shocked everyone by coming in well above those estimates, with a reported 35 cents per share for the quarter. Wall Street is rewarding the stock nicely this morning, pushing shares up over 14% in early morning trading.(See more of today's earnings news).
While the company was able to show a nice increase in sales, it did caution investors that the current economic condition is challenging, and that it expects this to remain the case for the foreseeable future. It has been tough for RadioShack recently to compete with stronger rivals such as Best Buy (NYSE: BBY), but the company showed good signs of life during the quarter by posting a 6.4% increase in sales. This is a very good sign for the company, which has been struggling the past several quarters.
MOST NOTEWORTHY: IberiaBank, Dynamic Materials and Barr Pharmaceuticals were today's noteworthy upgrades:
Keefe Bruyette upgraded shares of IberiaBank (NASDAQ: IBKC) to Market Perform from Underperform after the company announced that Pulaski has assumed the insured deposits of ANB Financial of Bentonville, Arkansas.
KeyBanc upgraded Dynamic Materials (NASDAQ: BOOM) to Buy from Hold citing stability in base business, valuation, and the added benefit associated with a European competitor being acquired.
Cowen raised Barr Pharma (NYSE: BRL) to Outperform from Neutral citing the recent pullback.
OTHER UPGRADES:
Goldman added McGraw-Hill (NASDAQ: MHP) to its Conviction Buy List.
RBC Capital raised RadioShack (NYSE: RSH) to Sector Perform from Underperform.
Sirius Satellite (NASDAQ: SIRI) was upgraded at Merrill Lynch to Neutral from Sell.
Shares of electronics retailer Radioshack (NYSE: RSH) are trading lower in premarket trading after putting up less than impressive earnings this morning.
The company was able to slightly come in above analyst estimates, with 30 cents per share compared to the forecast 29 cents per share, but the rest of the report left much to be desired. Compared to its first period last year, earnings were down slightly, as the company was able to show earnings of 31 cents a share last year. Revenue was also lower, by 4.4%.
One area that analysts always look at in judging a company's performance is same-store sales. Radioshack was weak in this area as well, posting a drop of 4% year-over-year. The company blamed this decline on lower demand for its Sprint post-paid wireless contracts and related accessories. Excluding this weak part of its business, Radioshack stated that it would have actually seen a 0.7% increase in its same-store sales.
RadioShack Corp. (NYSE: RSH) shares are trading higher this morning after the company posted a fourth-quarter profit of $101 million, or 77 cents per share, beating analyst expectations of 72 cents per share. RSH was helped by lower operating costs, which counteracted a drop in same-store sales. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on RSH.
After hitting a one-year high of $35.00 in June, the stock hit a one-year low of $13.31 in January. RSH opened this morning at $17.03. So far today the stock has hit a low of $17.00 and a high of $19.00. As of 10:40, RSH is trading at $18.50, up $2.76 (17.5%). The chart for RSH looks neutral and improving slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $15 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make an 8.7% return in just two months as long as RSH is above $15 at April expiration. RadioShack would have to fall by more than 18% before we would start to lose money.
RSH hasn't been below $15 by too much in the past year and has shown support around $15.10 recently. This trade could be risky if the US economy continues to worsen, but even if that happens, this position could be protected by the support the stock might receive due to its positive announcement today.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in RSH.
Electronics retailer RadioShack Corporation (NYSE: RSH) is on the rebound. The company posted net income of $46.3 million for 3rd Quarter 2007, as opposed to a net loss of $16.3 million in 3Q 2006. Cash generation is up, prepaid wireless system sales are up, GPS system sales are up, gross profit is up, and cash balances are up. On the flip side, better inventory management and a more profitable product mix combined with serious cost control efforts to reduce SG&A expenses by 13%, contributed to the rebound.
Radio Shack managed to post these good numbers despite the fact that total sales fell 9.4% due to large declines in Sprint post-paid wireless systems. CEO Julian Day insists that Radio Shack will continue to focus on both growth and profitability despite continuing problems in post-paid wireless sales. The company is trying to help its bottom line by continuing to repurchase shares, $162 million worth in 3Q 2007 alone, out of $209 million YTD.
Perhaps electronics will be a hot holiday seller this winter, giving Radio Shack a much needed boost. The stock currently trades at $18.21 and will pay a dividend of 25 cents per share.
Radio Shack Corp. (NYSE: RSH) reported net quarterly income of $46.3 million this morning ($0.34 per share) compared to a year-ago net loss of $16.3 million ($0.12 per share) as the company continued digging itself out of a hole under new CEO Julian Day. It was good to see the gadget and accessory retailer reverse its 2006 loss from the same quarter a year ago, but the revenue numbers didn't do as well. The retailer saw a 9.4% decline in its most recent quarter, to the tune of just over $960 million as same-store sales fell 8.6% from the year-ago quarter.
In other words, the cuts and restructuring Day has put in place -- which were sorely needed -- seemed to have worked in the latest quarter, although sales slumped pretty badly. It's been said that any competent CEO can slash costs and tell his or her troops to find cuts, but only the long-term leader can take the reins when that ends and grow sales and revenue beyond the cost-cutting stage. Day has not had enough time to really progress that far, but his number is coming up soon.
Analyst estimates were for a $990 million quarter with an EPS of $0.26, so the retailer did beat earnings estimates for the quarter (though not revenue estimates). An interesting factoid for the retailer's just-completed quarter: gross margin improved to 51% while selling, general and administrative expenses declined 13%. Now, that is cost cutting if I've ever seen it. Still, Day referenced the retailer's weakness in gaining commissions on post-paid wireless customers. Radio Shack still relies on cellular sales as a large part of its business, in my opinion. Is the company a retailer or a wireless reseller? Estimates peg about 15% of revenue at Radio Shack coming from wireless sales (specifically, those from Sprint Nextel). That's almost a fifth -- and way too large for comfort when a retailer is joined at the hip of a cellular carrier that's having severe ups and downs.
Children's Place (NASDAQ: PLCE) operates 899 The Children Place stores and 328 Disney Stores. PLCE is recently up $1.58 to $24.23 on renewed takeover speculation. Ex-chief executive, Ezra Dabah, a owner of 17.9% of PLCE, has said he's considering buying the company and engaged Bear Stearns (NYSE: BSC) as his financial adviser. PLCE November option implied volatility of 76 is above its 26-week average of 45 according to Track Data, suggesting traders are positioning themselves for a high share price.
RadioShack (NYSE: RSH), a company with a presence of through approximately 6,000 stores, is recently up .33 cents to $19.78 on renewed & unconfirmed buyout speculation. RSH is expected to report EPS on 10/29. RSH call option volume of 5,206 contracts compares to put volume of 514 contracts. RSH November option implied volatility of 70 is above its 26-week average of 43 according to Track Data, suggesting larger price risks.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
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Here are some highlights from this past week's 
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Here are some highlights from this past week's 
Shares of electronics retailer 
Children's Place
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