Goldman's RadioShack Upgrade Shows Faith in a Once-Flailing Brand

Last Updated Jan 6, 2010 1:37 PM EST

Optimism for RadioShack (RSH)'s future is suddenly very high. Analysts at Goldman Sachs recently upgraded the electronics chain to "buy," and added it to its "conviction buy" list, sending the retailer's stock soaring to levels not seen since 2007.

The upgrade signals quite a continued turnaround for RadioShack, which closed 700 stores a few years ago. Many wondered about the retailer's relevance, especially with larger-format competitors like Best Buy (BBY) and Walmart (WMT) selling similar items.

Sachs analyst Matthew Fassler is betting on RadioShack for a few reasons. He likes that it sells smart phones, a product that consumers eat up right now, and a category in which the company is a sales leader. Additionally, RadioShack is also increasing its kiosk presence in Target (TGT) stores, driving more growth.

Through branding, RadioShack is also trying to make itself more relevant with the consumer. Earlier this year, the company nicknamed itself The Shack. "We're contemporizing the way we want people to think about our brand," said Lee Applbaum, chief marketing officer, at the time. "The Shack speaks to consumers in a fresh, new voice and distinctive look that reinforces RadioShack's authority in innovative products."

The new branding strategy hasn't yet positively impacted RadioShack's financial performance. During its third quarter, sales at stores open at least a year dropped 2.9 percent, while net revenues were down 3.1 percent, to $999 million. Net income was $37.4 million, down from $49.1 million in the same year-ago period. However, harking back to Fassler's assessment, the best-selling items at stores were Sprint Nextel and T-Mobile wireless products.

One thing that RadioShack's got going for it is a huge network of more than 4,400 stores across the country, and the demise of Circuit City, a major competitor. If RadioShack can really capture that wireless niche, the chain could avoid the same fate and maybe hold its own against Walmart and Best Buy.