RadioShack's Strategy Questionable, Though Not Its Valuation; Reiterate Neutral

4/28 - "...profit improvement came only from the corporate level; unit-level operating profits per store actually fell (6%), similar to the (7%) decline in the fourth quarter. Mere stabilization in store-level profits would enable us to pay a more respectable multiple for the stock, but the firm needs to tackle the challenge of sustaining its top-line profitably to get there."

"We are trimming our forecasts to reflect the 1Q shortfall; a more subdued margin outlook, particularly for 2Q2008; and, a slower rate of buybacks, given management’s hesitancy to repurchase stock aggressively in the quarter. Our new estimates are $1.67 for 2008, down 5c; $1.78 for 2009, down 4c; and $1.75 for 2010, down 9c. Our new price target is $20, down from $21, suggesting ongoing value here, albeit without as clear of a catalyst. The stock’s reaction to earnings seems overly severe given the modest shortfall and the fact that RSH produced these results in a tough environment, and we would anticipate a bounce from current levels."

"Key risks...BBY’s rollout of Best Buy Mobile, a perceived risk near-term, and a real risk longer-term; continued weakness at Sprint; a lack of growth avenues."