By Chad Brand of Peridot Capitalist
Despite Tuesday’s dramatic 416 point drop in the Dow Jones Industrial Average, you may have noticed one stock that managed to gain 12% for the day. That stock was RadioShack (RSH), the electronics retailer that I highlighted earlier this month as a major turnaround candidate in retailing, similar to Sears Holdings (SHLD).
Why all the fuss over RSH shares when the rest of the market was getting pummeled? Well, the company reported fourth quarter earnings of $0.62 per share, soaring past the $0.43 forecasted by analysts. RadioShack also gave 2007 earnings guidance of $1.00 to $1.20 per share. That second part is most important because the average estimate for RSH’s earnings is $1.12 in 2008!
That’s right, analysts aren’t exactly confident about RadioShack’s prospects. In fact, heading into the earnings report, more of them rated RSH a "sell" than a "buy" (quite a rarity on Wall Street). Prior projections of $0.91 in EPS for 2007 and $1.12 in 2008 will obviously have to be adjusted upward dramatically, as the company is on track to beat the current 2008 estimate one year early.
Since the turnaround plan at RSH was not expected to be bearing this much fruit so early, the stock price is adjusting to the success newly crowned CEO Julian Day is having. The stock has gone straight up from $16 to $25 in recent months, so investors might want to hold off buying more until the stock pulls back a bit. However, the company’s turnaround plan is firmly in place, and equity holders will likely reap the benefits over the next several years.
Full Disclosure: Long RSH and SHLD at time of writing
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