Tags: Radio | Shack | value | RSH

Radio Shack Struggles to Boost Value

By    |   Friday, 23 Dec 2011 10:13 AM

Electronics retailer Radio Shack (RSH) is going through a period of declining profit levels. The company struggles to boost shareholder value and time will tell if the steps taken will reverse recent trends.

Radio Shack sells consumer electronic products, cellular phones, services and accessories through more than 4,600 Radio Shack stores in the United States and Mexico. A new venture involves putting Radio Shack branded cellular phone kiosks in Target stores.

Just under half of revenues come from the sale of mobile products and services, a quarter of sales are from the electronic components for which the company is known, and the balance is consumer electronic equipment.

For the first nine months of 2011 Radio Shack reported revenue of $3 billion, up from $2.96 billion a year earlier. Net income for the period was $60.3 million or 58 cents per share, down from $149.1 million and $1.20 per share.

For the 2011 fourth quarter, the consensus earnings forecast is 38 cents per share, compared to 51 cents earned in the 2010 fourth quarter. Through the 2011 third quarter, Radio Shack came up short of the consensus earnings estimate for the last four consecutive quarters.

Share value

In the third quarter earnings release, Radio Shack management announced a couple of initiatives to boost shareholder value. The dividend was doubled to an annual rate of 50 cents per share and a $200 million share buyback program was initiated. At the current share price, the buyback would represent about a fifth of outstanding shares.

Investors looking at Radio Shack should not be tempted by the greater than 5 percent dividend yield without analyzing the future prospects of the company. Investors should also ask whether the new shareholder initiatives are the best use of company cash in a period of eroding profits.

In the third quarter, the company switched to Verizon (VZ) as its primary cellular service provider, replacing T-Mobile. Recently the analysts from RBC Capital Markets reiterated their sector perform rating on Radio Shack but reduced their target price by $3 per share.

The company next reports on Jan. 24.

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Electronics retailer Radio Shack (RSH) is going through a period of declining profit levels. The company struggles to boost shareholder value and time will tell if the steps taken will reverse recent trends. Radio Shack sells consumer electronic products, cellular phones,...
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Friday, 23 Dec 2011 10:13 AM
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