Chad Brand

Dell-RadioShack Merger? I'm Not Holding My Breath

Even though RSH is a much more focused retailer than Sears and Kmart as far as product lines go, I still think the common thread is a brand that has been losing customers, not gaining them, for years. I agree that at some point Day will have to grow the business, just like Lampert will have to do with Sears.

However, I think investors underestimated how much juice could be squeezed from Sears/Kmart, hence the stock's move from 15 to 175. There is still a lot of room for SHLD, and the same goes for RSH. Once they reach peak margins I will likely sell RSH because I do not believe Day can bring many more customers in the doors. That said, he could easily get RSH's EPS to $2.50 just with the current sales base of $4B. If that happens, the stock is $35 or $40. At that point, I'd be a seller.

I think we just disagree how high it can go before it reaches its potential. The same goes for SHLD... they won't be able to boost sales that much, even with the new marketing plans underway, but margins still have a way to go, which will propel the stock higher. Neither stock is a sell... yet anyway.

As far as a misstep causing it to drop like a rock, I just don't see what can go wrong. They have very few customers as it is. If you still shop at RSH today, you're not going to change your mind and go elsewhere as they try to improve the buying experience. The business is at rock bottom from a sales perspective, so how could it get any worse as long as they keep costs in line and don't blow cap ex on low return projects? I guess they could drive people away as they make changes if they make poor decisions, but that seems unlikely.

Dell-RadioShack Merger? I'm Not Holding My Breath

How is that not exactly like Sears Holdings? Isn't Kmart exactly the same as RadioShack as far as a retailer that has lost its relevance and been beaten by most of its competitors? It's a perfect comparison.

I'm not saying RSH is a great buy for the next 5 years, but earnings are what drive stock price. Once Day maximizes the earnings power (in this case, margins from a stagnant revenue base) then the investment thesis is over. My point is that we're not there yet. He can get EPS well north of $2.00, which will push the stock higher.

There is nothing that can "catch up with you." All that will happen is one day he'll wake up and realize that nothing else can be done because BBY is getting all the business and he can't squeeze anymore juice out of the orange. The upside will be gone, but the stock won't tank unless some horrible management team runs it into the ground again.

It's EXACTLY the same thing as SHLD. Where do you think Day is getting these ideas from? Perhaps from when he helped Lampert lead Kmart out of bankruptcy and into the black? Nobody ever was seen in a Kmart either, but he managed to build up enough cash from it to buy Sears!

Dell-RadioShack Merger? I'm Not Holding My Breath

That's the same exact argument that was made with SHLD. RSH is strictly a margin story. I agree the stock is extended after a jump from 18 to 32 almost overnight. However, as was the case with SHLD, metrics like same store sales are irrelevant. Stocks are all about earnings and estimates are still too low.