The stock price of RadioShack Corporation (NYSE:RSH) suffered a steep decline after an analyst at Wedbush stated that its bankruptcy reorganization was imminent.
The shares of RadioShack Corporation (NYSE:RSH) closed at $0.94 per share, down by more than 22% on Tuesday. During the extended hours trading, the stock declined further by 2.7% to $0.91 per share.
Wedbush says RadioShach stock is worth $0
In a note to investors, Wedbush analyst Michael Pachter said the shares of RadioShack Corporation (NYSE:RSH) is worth nothing or $0.
Pachter emphasized that RadioShack Corporation (NYSE:RSH) failed to negotiate with its lenders under the 2018 Credit Agreement and Term Loan to give their consent to close up to 1,100 stores in May.
The company said the terms offered by the lenders were unacceptable as it only allows the closure of 200 stores annually or 600 stores over the life of the credit agreement.
According to Pachter, the operational decisions of RadioShack Corporation (NYSE:RSH) “now being vetted by creditors and equity investors are no longer relevant to management decisions—the creditors clearly are in control of the ship and, in our view, the ship is sinking.” The analyst added, “We believe the bankruptcy reorganization is imminent…”
In June, B. Riley & Co. analyst Scott Tilghman predicted that there is more than a 50% chance that RadioShack Corporation (NYSE:RSH) will file for bankruptcy. He also lowered his target price for the stock to $0.
RadioShack Corporation (NYSE:RSH) is expected to release its second-quarter fiscal 2015 financial results on Thursday, September 11. Pachter anticipated that the company will report losses of $0.66 per share compared with the $0.36 losses per share estimated by Wall Street analysts. He estimated that RadioShack will post $762 million in revenue compared with the $893 million revenue consensus estimate.
Persistent structural decline
Pachter believed that brick and mortar electronics retailers will suffer a persistent structural decline citing the reason that online sales will continue to take market share.
According to him, RadioShack Corporation (NYSE:RSH) is incapable of investing in price competitiveness because it has limited financial flexibility, and its primary business is consumer electronics “convenience store.”
On the other hand, Pachter noted that Best Buy Co Inc (NYSE:BBY) experienced comp decline of 2.7% in Q215, and its domestic sales dropped 2%. In addition, the company’s store level sales fell approximately 4% without the contribution of over $100 million incremental online sales.
“Notwithstanding significant investments in price competitiveness, we see continuing evidence of traffic deterioration and lower productivity for Best Buy’s retail footprint,” said Pachter.