RadioShack Corp. (NYSE: RSH) is all doom and gloom. Isn’t it? Maybe not. Bank of America Merrill Lynch has actually raised the formal investment rating to Buy in coverage this Tuesday. This was a very unusual upgrade if you read through the notes.

The firm’s report is based upon the optionality being explored and the price target was raised to $2.50 from $2.00 on the stock. The prior rating was Underperform and 2013 estimates were raised to -$0.50 EPS from -$0.59 EPS for 2013 and raised to -$0.35 EPS from -$0.68 EPS.

Today’s upgrade is not just all positive as you might expect when you see an Underperform rating go up to a Buy rather than a Neutral. Bank of America noted:

The next news flow for RSH will likely be another very difficult quarter around October 24 or 25. However, we believe this has been well-telegraphed to the Street and priced into the stock. We see a numerous of potential bright spots – or at least stabilization, namely: GM declines have likely peaked and should ease as the negative impact from smartphones has mostly run its course, and liquidity appears sufficient for now. Domestic company-owned stores have been flat at just over 4,400 since 2006, despite revenues declining by around 10% since then.

Bank of America also talks up a 25% haircut to inventory and to account receivable and said that closing underperforming stores or franchising them out would free up $115,000 in cash per store.

After closing at $2.08, the 52-week trading range is $2.01 to $13.94; shares are trading up 11% at $2.32 on the news. This does not exactly leave a whole lot of room left up to that $2.50 price target.

JON C. OGG

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