Is RSH for Sale?

Everyone is familiar with RadioShack Corp. (NYSE – RSH - $3.05), even if you are not a fan of the electronics chain.  RSH is a value play that was under significant accumulation yesterday, on no news.

Could this portend a takeover?

RSH is a leading national retailer of innovative mobile technology products and services, as well as products related to personal and home technology and power supply needs. While founded as a source of electronic parts and power supplies, the Company’s bailiwick in the 21^st century is to provide consumers with a targeted assortment of wireless phones and other electronic products and services from leading national brands, exclusive private brands and major wireless carriers, all within a comfortable and convenient shopping environment. The Company employs approximately 34,000 knowledgeable sales experts globally through its retail network of approximately 4,700 company-operated stores in the U.S. and Mexico, 1,500 wireless phone centers in the U.S., and 1,100 dealer and other outlets worldwide.

In the middle of January, the Company terminated its mobility sales agreement with Target (NYSE – TGT) which on the surface was likely a good move as it was not adding materially to operating performance.

However, we take a different approach to this move. We believe that the $4.4 billion in annual sales retailer may have made this move as a precursor to a sale of the company to either another retailer or a firm that may have preferred the Target contract not be renewed.  The stock has run substantially higher on no news, and we believe that could be telling for a stock that trades with a market cap of less than $450 million, or 10% of its revenue.

In our view, RSH could turn out to be a strong M&A play, and believe the price could approach the upper $3.00 to low $4.00 range.  Even without such a transaction, the value stock seems to be in the midst of a turnaround, so investors with a longer term outlook may still eke out sizable gains.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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