The bank lowered RadioShack's price target based on a higher probability of default the retailer will face over the next three years.
"The cut primarily reflects the higher probability assigned to default within three years by the CDS market, now about 80% vs. 56% in October," analyst Matthew J. Fassler wrote. "The probability assigned to our $5 turnaround scenario is now 20%. This scenario is based on 1% EBIT margin vs. 2% previously, and 8.0X rent-adjusted EV/EBITDAR vs. 7X previously, as we would anticipate a higher multiple on a more depressed earnings figure."
- RADIOSHACK CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, RADIOSHACK CORP swung to a loss, reporting -$1.15 versus $0.64 in the prior year. For the next year, the market is expecting a contraction of 87.4% in earnings (-$2.16 versus -$1.15).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 138.6% when compared to the same quarter one year ago, falling from -$47.10 million to -$112.40 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, RADIOSHACK CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for RADIOSHACK CORP is currently lower than what is desirable, coming in at 30.41%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -13.95% is significantly below that of the industry average.
- The share price of RADIOSHACK CORP has not done very well: it is down 18.91% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full analysis from the report here: RSH Ratings Report