William Frohnhoefer, BTIG Research (Neutral)
Any capital infusion would likely be dilutive to the equity, either indirectly (by layering more secured debt on the balance sheet) or directly (by being raised through an equity offering). In terms of the different constituencies of this name, the existing secured creditors seem to be indifferent to outcomes, given the extent of their engagement with other stakeholders.
The unsecured bondholders would definitely not want to see more debt layered on top of them by a new financing, and all things being equal, might prefer a filing sooner rather than later to preserve as much of their recovery as is left. They are in an equivocal position: there will most likely be more debt layered on them outside of reorganization (if the reported refinancing ever takes shape), and also inside of it, since we think the firm would need an expanded debtor-in-possession facility of some kind, even if the existing term loan were converted into a DIP.
The equity holders want to see a refinancing: it is their one chance, in our view, of recovering any value. And they would likely prefer any accompanying dilution than putting up too much new capital. We maintain our rating, and struggle to see any fundamental reason for the stock move absent a palpable term sheet.
TheStreet Ratings team rates RADIOSHACK CORP as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:"We rate RADIOSHACK CORP (RSH) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself." Highlights from the analysis by TheStreet Ratings Team goes as follows:
- 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 127.0% when compared to the same quarter one year ago, falling from -$43.30 million to -$98.30 million.
- The debt-to-equity ratio is very high at 8.46 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, RSH has a quick ratio of 0.51, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- 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.
- Net operating cash flow has significantly decreased to -$37.80 million or 323.66% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 75.90%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 177.14% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full analysis from the report here: RSH Ratings Report
--Written by Laurie Kulikowski in New York. Follow @LKulikowski
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