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RadioShack, Leap Join Forces

RSH

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Struggling electronics retailer RadioShack Corp. (RSH - Analyst Report) has collaborated with Cricket Communications, a wholly-owned subsidiary of Leap Wireless International Inc. to offer no-contract wireless services from its stores across the U.S.

Initially, RadioShack will offer Huawei’s Mercury Ice, a smartphone powered by Google Inc’s. Android operating system and is priced at $149.99. The company will also offer Huawei Pillar, a feature phone with full keyboard and is priced at $39.99.

RadioShack has vowed to bring in two more smartphones by the end of September and the entire range will be offered from Cricket Communication’s stable.  

The feature phone customers can choose either from RadioShack’s wireless service offer of a $25 plan/month with 300 voice minutes and unlimited texts or a $35/month plan with 1000 voice minutes and unlimited texts.

The smartphone plans include a $50/month and $60/month offering, which limits download speed after 1GB and 2.5GB of data usage respectively. RadioShack is also offering two more expensive plans with higher data caps.

Fort Worth, Texas-based RadioShack has been struggling for quite some time and recently declared dismal financial results for the second quarter of 2012 with both the top and bottom line well below the Zacks Consensus Estimate. The company suspended its dividend, owing to weak result in the reported quarter. 

The uncapped data plan market is growing and is particularly attractive among the lower income group or customers who don’t want to be tied down within any contract. We believe this new offering will help RadioShack to attract customers who prefer data options without any cap or throttling.

Additionally, it is expected that it will increase its retail footprint as online shoppers can’t avail this offer.  However, the company could face competition from rival MetroPCS Communications Inc. , which has recently introduced a no-strings-attached unlimited plan for $55/month. 

The current Zacks Consensus Estimate for RadioShack Corp. is pegged at a loss of 16 cents for the third quarter of 2012 with a growth rate estimate of (205.00%). For the years 2012 and 2013, the Zacks Consensus Estimates stand at a loss of 31 and 12 cents with a growth rate of (133.00%) and 63.23%, respectively.

Recommendation

RadioShack currently enjoys a long-term Neutral recommendation. Additionally, it holds a short-term Zacks #5 Rank (Strong Sell) on the stock.

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