Tuesday, KeyBanc Capital upgraded RadioShack Corp. (RSH) shares to Hold from Underweight. The brokerage increased its 2009 EPS estimate to $1.54 from $1.48, while maintaining its 2010 estimate of $1.60.
Analyst Bradley Thomas upgraded the stock following the third quarter of 2009 EPS release on October 26. RSH reported third quarter EPS below consensus, as the analyst warned, but better than his forecast due to improving wireless sales.
The analyst said that he is encouraged by the improving sales trends, but believes the gross margin and SG&A outlook may still be somewhat more limited. Still, the company is a strong cash-flow generator, valuation is inexpensive, and the analyst believes downside is limited.
The analyst expects the company to generate more than $180 million in free cash flow in 2009, representing an 8% FCF yield. RadioShack also recently tendered $43.2 million of its $350 million 7.375% notes, which the analyst expects to benefit EPS by nearly $0.02 annually through lower interest expense.
Furthermore, the company has $290 million remaining on its buyback authorization, following the increase of $200 million. No shares have been repurchased in 2009, and the analyst believes the company is likely to resume share repurchase once its blackout period is over. The analyst is encouraged by management's efforts to use cash opportunistically to benefit shareholders.
Currently, RSH is down $0.40 or 2.20% and trading at $17.75.
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