RadioShack Corp. (NYSE: RSH) has been a very well telegraphed retail implosion. If you think that Amazon.com Inc. (NASDAQ: AMZN) has been a wrecking ball to Best Buy Co. (NYSE: BBY), you haven’t seen anything like RadioShack. So when you see a key analyst downgrade to a “Sell” rating from a firm like Goldman Sachs you might expect that shares would be down hard.
Is a 3.5% drop to $3.35 a catastrophic price drop after a downgrade? Absolutely not. In fact, it might even be considered a key victory. RadioShack recently brought in a new CEO to lead the charge, but the problem is that this executive’s background is sprucing up pharmacies. Unless RadioShack is going to open up in-house prescription fulfilment, we failed to get the fit here.
Goldman Sachs downgraded the rating to Sell from Neutral and lowered its price target to $2.75 from $2.95 on Tuesday morning. What is interesting is that Goldman Sachs resumed coverage on the troubled Best BUy Co. (NYSE: BBY) to Buy. The reason we think no one cares about this downgrade at RadioShack is that it offers nothing really new for investors.
The firm believes that there will not be a go-private deal that gets rekindled. Ask yourself this, if you personally had $333 million that merely matched RadioShack’s market cap today… “Would you spend that money to take over RadioShack?” If your answer is yes we would like to hear from you and discuss the merits of buying the London Bridge. The problem is that shares have already bounced over 80% from the bottom but they remain a shell of the former days when Julian Day was hired to go find a buyer. The recession got in the way of the turnaround and he finally left after no private equity buyer and no strategic buyer surfaced. Perhaps the problem is that Trekkies would refer to RadioShack as a no-win Kobayashi Maru situation.
Even the note about RadioShack being leveraged with little equity value is nothing new. If there was value a private equity buyer would have bought the electronics retailer.
A loss of only 3% to $3.35 might as well be considered a win here considering how dire the situation is. That being said, it is a really bad situation when your best celebration is that the reception was only minimally bad. RadioShack has fallen prey to Best Buy Co. (NYSE: BBY) and other competitors, and Best Buy ended up falling prey to Amazon.com Inc. (NASDAQ: AMZN).
It is a bad place to be in when you are the low man on the totem pole and the dirty water is rising. How a manager can turn around RadioShack remains a mystery. This is a brand that long-term has serious viability risks.