Goldman Buys 13% Stake in RadioShack

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Includes: DELL, GS, RSH
by: SA Eli Hoffmann

Goldman Sachs Asset Management has taken a 13% stake in RadioShack, according to a June 11 SEC filing. The move makes it RadioShack's #2 shareholder, behind Fidelity Management and Research, which owns 15% according to a March filing. RadioShack CEO Julian Day is in the midst of a company-wide overhaul, and shares are up 120% since he took the reins last July. But some analysts say the runup is overdone: "We believe that investors are anticipating much stronger earnings then what the general analyst community is looking for," -- BMO analyst Richard Weinhart. In April, Day acknowledged the company continues to face challenges: Q1 comparable sales dropped 9.2% y/y and total sales fell 14% to $992 million. Part of the drop is a result of the company's closure of 480 underperforming stores. Recently, there has been speculation the company might be the subject of a buyout/merger attempt by PC giant Dell, as it looks to bolster its retail foothold. Weinhart, however, dismisses the rumors, noting Dell's RadioShack Inc 12 06 2007 Chartrecent deal with Wal-Mart to sell computers at its stores. He says RadioShack's inflated valuation will likely deter other courtiers. He also notes that wireless revenues fell 28% in Q1, vs. 30% gains for competitors Circuit City Stores and Best Buy; wireless sales account for 30% of RadioShack's revenue. InsiderScore.com's Ben Silverman says the recent buying suggests Goldman Sachs has "a lot of long-term faith" in the company.

Sources: SEC filing, Financial Times, Barron's
Commentary: Which Partner Will Help Ease Dell Into Retail?Buying Radio Shack Would Kill DellRadioShack Still Faces Plenty of Challenges
Stocks/ETFs to watch: RadioShack Corp. (NYSE:RSH), Goldman Sachs Group Inc. (NYSE:GS), Dell Inc. (NASDAQ:DELL), Circuit City Stores Inc. (NYSE:CC), Best Buy Co. Inc. (NYSE:BBY). ETFs: Retail HOLDRS ETF (NYSEARCA:RTH), SPDR S&P Retail (NYSEARCA:XRT), PowerShares Dynamic Retail (NYSEARCA:PMR)

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