RadioShack Corp.(RSH) is slated to release its first-quarter 2011 results on April 25, before the opening bell. The current Zacks Consensus Estimate for the first quarter is pegged at 35 cents, representing an annualized growth of -10.58%.
With respect to earnings surprises over the trailing four quarters, RadioShack has done reasonably well in all the quarters except the last quarter where it was 2 cents short of the Zacks Consensus Estimate. The average earnings surprise was a positive 3.42%.
Fourth Quarter Performance
On February 22, 2011, Qualcomm reported its fourth-quarter 2010 financial results. Net income was $ 57 million or 51 cents per share compared with $ 75.7 million or 60 cents per share in the year-ago quarter. Quarterly EPS of 51 cents was below the Zacks Consensus Estimate of 53 cents.
Quarterly net revenue was $ 1,367.8 million, up 3.8% year over year and was almost in line with the Zacks Consensus Estimate of $ 1,369 million. The year-over-year increase in revenue was driven by the kiosk sales. Furthermore, continued growth in the postpaid wireless segment, along with the improvement of prepaid wireless handsets, laptops, and wireless accessories sales aided revenue growth in the quarter.
Agreement of Estimate Revisions
In the last 30 days, out of the 16 analysts covering the stock, 2 analysts decreased their EPS estimates for the first quarter of 2011 while none increased their estimates. Similarly, for the second quarter of fiscal 2011, out of the 16 analysts covering the stock, 1 analyst decreased its EPS estimate but none increased it.
For fiscal 2011, in the last 30 days, out of the 19 analysts covering the stock, 2 analysts increased their EPS estimates and 1 analyst decreased its estimates. Likewise, for fiscal 2012, out of the 18 analysts covering the stock, 1 analyst increased its EPS estimates while the other slashed it.
Magnitude of Estimate Revisions
During the last 30 days, the Zacks Consensus Estimate was 1 cent below the current estimates while for the second quarter of 2011,the Zacks Consensus Estimate was in line with the current estimate of 39 cents. Similarly, for fiscal 2011 and fiscal 2012, the Zacks Consensus Estimate was in line with the current estimates of $ 1.70 and $ 1.90.
Earning Surprises
In the previous quarter, RadioShack reported EPS of 51 cents, which was below the Zacks Consensus Estimate by 2 cents. The current Zacks Consensus Estimates for the ongoing quarter contains a 5.71% downside potential but for the upcoming quarter, it is also reflecting a 2.56% upside potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2011 and 2012, the Zacks Consensus Estimate upside potential are 1.16% and 2.63%, respectively.
Our Recommendation
RadioShack is facing increasing competitive pressure from other large retail stores like Wal-Mart Stores Inc. (WMT) and Best Buy Co. Inc.(BBY), online shopping stores and other mobile carriers like Verizon (VZ), which directly sales handsets to customers. Increasing competitive threat from several fronts may result in lower wireless sales going forward. Precipitous fall in demand for the non-wireless category products, along with continuous decline in gross profit margin remain serious concerns for the company.
However, inclusion of iPhone and tablets in their product portfolio will bring a ray of hope, going forward. Moreover, the kiosk business is gaining momentum and has done excellent business in the previous quarter while remaining as an attractive opportunity for RadioShack.
We, thus, maintain our long-term Neutral recommendation for RadioShack. Currently, RadioShackhas a Zacks#3 Rank, implying a short-term Hold rating on the stock.
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