RadioShack Is Target of Potential Buyout

By Glenn Curtis  JUN 02, 2010 10:10 AM

Blackstone is rumored to be a bidder, but Best Buy could also gain from acquiring the electronics retailer.

 


Asian stocks fell overnight. The Hang Seng and the Nikkei were off 0.13% and 1.12%. European stocks were in negative territory too in early trading. And here in the US we're currently trading lower.

Here are some stocks that deserve a look:

RadioShack (RSH):
The chatter is that the electronics retailer could get bought out. The name Blackstone (BX) is being tossed about as a potential bidder.

My thoughts:

1.
A buyout would make sense. Management has taken the company a long way in a short period of time, as evidenced by a simple price chart, and a private equity firm could take the company to the next level in terms of squeezing out value and profits.

2. On a per-square-foot basis, RadioShack stores are much smaller than those of Best Buy (BBY). However, the large retailer seems like it could be a bidder too. Not only would it pick up a highly profitable company but also a lot of overlapping merchandise. If nothing else, it could be a good home or place for it to build out its increasingly popular “Geek Squad.”

3. I could see a 10% to 15% premium from current prices being paid to acquire the company.

BP (BP):
Shares of the oil giant have been getting crushed for obvious reasons and took another big haircut yesterday on heavy volume. But is the selling overdone and is now the time to be bottom fishing?

My feel:

1. It’s hard, maybe even impossible, to determine the financial liability, if any, the company might face at this point. However, the courts and the administration are unlikely to simply slap the company on the wrist.

2. On the other hand, the demand for so-called black gold isn’t going away, and in the years to come, as the number of cars and planes increases, demand should only grow. That means companies, like BP, that are willing to dig deep below the earth’s surface in hopes of a find are needed.

3. Some point to the dividend as being a sweetener. I wouldn't let that tempt me. This thing is likely to be tied up in the courts for years and the risk can far outweigh the reward of the dividend.

4. The Exxon (XOM) Valdez spill was up in Alaska. Most Americans didn’t witness it firsthand. However, countless Americans live and vacation along the gulf coast. The public’s awareness is likely to put pressure on the government to really put the screws to BP.

5. All that said, when it comes to oil, I’d prefer at this point to keep a company like Schlumberger (SLB) on my radar screen. Service companies are bound to be in demand in the future, and Schlumberger has a huge reach. It also has deep pockets and is expected to post strong EPS growth over the next year.

Coach (COH):
ThinkEquity placed a Buy rating on the company famous for its beautiful and expensive bags. (See Upgrades and Downgrades: Coach Ready to Ride Higher?)

My thoughts:

1. At 18 times this year’s estimate there's still some upside to be had here. And I'd suggest that the ThinkEquity coverage could give it a nice boost in today’s trading.

2. However, some insider activity at these levels would make me a bit more comfortable. They’ve been quiet for a while now.

3. Also, it still seems to me that (gasp) discount retail is a better deal, especially with the high unemployment rate, this shaky stock market, and early-stage recovery. A company like Walmart (WMT), which has deep pockets, an ability to advertise, and a wealth of necessities on its shelves just seems like a better bet given its appeal to the masses.

Carnival (CCL) / Royal Caribbean (RCL):
Susquehanna started both cruise lines with Positive ratings, per Justin Sharon.

My take:

1. Both companies remain dominant cruise operators and this is unlikely to change for the foreseeable future. As the domestic economy perks up, bookings should too. And as bookings pick up so should gambling in their casinos, shopping in their stores, and bar sales, where there's lots of money to be made.

2. If the economy picks up steam I expect the deals that these companies have been offering to evaporate, which would give margins a nice shot in the arm. In my mind, a couple of years out both of these companies have big earnings potential. As things stand right now Carnival is expected to earn $2.37 a share this year and $2.78 a share next year. Royal Caribbean is expected to earn $1.95 a share this year and $2.68 a share next year.

3. One thing I'm concerned about, but not hearing much on, is how the gulf oil spill may or may not impact these companies or the routes they take.

Have a great day!


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No positions in stocks mentioned.

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