Why RadioShack (RSH) Is Continuing To Fall Today

NEW YORK (TheStreet) -- RadioShack (RSH) was falling 6.5% to $2.02 Thursday after Goldman Sachs lowered its price target for the retailer to $1 from $2.25.

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."

Fassler does not believe the retailer's plans to close 1,100 stores and its high-profile advertising will help rejuvenate the company.

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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 multiple weaknesses, 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 feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, poor profit margins and generally high debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • 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

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