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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Kirk © who wrote (5276)	5/21/1999 3:51:00 PM
From: Justa Werkenstiff	Respond to of 15132

Kirk: I would suggest you also check out Tandy (Radioshack)(TAN) for a bandwidth play. I now have three small caps that were bought out this year. One more this morning after Tandy purchased Amerilink (ALNK). I had been banging the buy button on this one (it does premises installation for all sorts of broadband access to small business and homes) when it was selling at book value at $7.00. She was bought out today by Tandy (Radioshack) in an all stock deal at around $15.60. Tandy established a Sprint PCS distribution representation which has turned out to be very profitable. It had recently enetered a similar agreement with Northpoint, a CLEC to establish broaband internet access via DSL. And now ALNK will install those services as well as others. What is interesting is that ALNK has strong ties to AT&T via TCI and was widely expected to do the cable modem work for same to a large extent and had already started to ramp up to provide that service. I still think it will provide this service. Check out this report from SSB: RCA - Is The Winner Salomon Smith Barney Thursday, May 13, 1999 --SUMMARY:--Tandy Corp.--Retailing--Hardlines 1) Tandy announced its long awaited Audio/Video alliance with RCA today. 2) Below we outline the many positive aspects of the deal. 3) We found another very interesting strategy being introduced to investors today. We believe the company is getting ready to announce an additional strategy to get into the installation business. Below we discuss why this is important, and why it will be the KEY driver of appreciation in Tandy Stock. --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 12/98 EPS $0.39A $0.44A $0.45A $1.02A $2.30A Previous 12/99 EPS $0.51A $0.54E $0.52E $1.21E $2.78E Current 12/99 EPS $0.51A $0.54E $0.52E $1.21E $2.78E Previous 12/00 EPS $N/A $N/A $N/A $N/A $3.21E Current 12/00 EPS $N/A $N/A $N/A $N/A $3.21E Previous 12/01 EPS $N/A $N/A $N/A $N/A $N/A Current 12/01 EPS $N/A $N/A $N/A $N/A $N/A Footnotes: --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:1M Prior:No Change Price (5/12/99).....:$83.43 P/E Ratio 12/99.....:30.0x Target Price..:$100.00 Prior:No Change P/E Ratio 12/00.....:26.0x Proj.5yr EPS Grth...:18.0% Return on Eqty 98...:15.0% Book Value/Shr......:10.84 LT Debt-to-Capital(a)20.9% Dividend............:$0.40 Revenue (99)........:3851.0mil Yield...............:0.5% Shares Outstanding..:101.2mil Convertible.........:No Mkt. Capitalization.:8450.1mil Hedge Clause(s).....:# Comments............: Comments............:(a) Data as of the most recently reported quarter. --OPINION------------------------------------------------------------------- ASIDE FROM RCA, THE BIG REASON TO OWN TANDY IS BANDWIDTH In addition to the key points illustrated below, we want to emphasize that RadioShack is fast becoming a major player in bandwidth technology. The company briefly alluded to its objectives for its installation business at the RCA presentation earlier today. We believe that investors fear a major investment in the installation business is similar to the investments in Incredible Universe and Computer City. THIS IS NOT TRUE. OUR SKEPTICISM IS RAPIDLY DISAPPEARING. Here's Why!! We believe it is important to realize that when announcements unfold regarding an installation strategy for Tandy, this will most likely be followed by other DSL and possibly even cable company's teaming up with Tandy to sell Bandwidth products. The installation business is imperative to attract cable and additional DSL companies to the RadioShack residual model. We believe that subsequent to the implementation of a turnkey solution to installing bandwidth, RadioShack will become a more important part of the Bandwidth revolution occurring in the U.S. The more we research bandwidth opportunities, the more we believe that RadioShack will replicate its successful Sprint model of selling service and receiving residuals. If we are correct, then revenues related to the current residual model will be more than doubled in the next three to five years. This makes Tandy shares a great retail or cable/DSL play for investors. We believe that with consolidation occurring in the cable industry, the need for an effective interface with the consumer becomes more important as the stakes are raised. We will follow up with more on this topic as it unfolds. Despite today's announcement about RCA, a development we believe very important to Tandy, we saw a glimpse of the future that we wanted to discuss. NOW BACK TO THE RCA ANNOUNCEMENT Our earlier predictions were realized today as RadioShack announced RCA as its provider of Audio/Video products in its stores. Below we outline what we believe are eight key points related to this announcement. 1) The RCA store within-in-a-store roll out will be phased in over the next four quarters. The first phase will begin immediately with the shipment of RCA DVD players. These player's will be priced at $299. RadioShack will also begin liquidating its Optimus A/V product inventory. The RCA store build outs will occur in the 1st quarter 2000. An aggressive advertising campaign will follow in 2Q 2000. 2) The RCA alliance should help drive comps in 2000 a challenge based on strong sales trends year to date. The company is confident of double digit A/V comps in the early part of next year due to this roll out. We agree, and would look for 15% comps in the first half of next year for this segment of the business. 3) RadioShack will sell RCA cable modems. Now RadioShack needs to establish an alliance with a cable provider. We believe a partnership could be announced in the second half of the year. In addition RadioShack will announce its home installation service program, most likely through an acquisition. We believe once RadioShack has home installation services, it will become a more attractive partner for a cable company. 4) The company stated that A/V gross margins will be remain similar to those realized with Optimus, RadioShack's private lable brand. We believe that will be tough to achieve on a percentage basis due to competitive pressures from Best Buy and Circuit City. However, despite lower gross margin percentages, we believe that gross margin dollars in this category will show substantial improvement. Currently, the only part of the A/V business performing well is the sale of DirectTV products. We believe that the prominence of the RCA name in addition to our belief that DBS sales will be in an aggressive growth phase for the next several years means improved sales providing better inventory turns and consequently a higher return on the inventory investment. One of the key components of this alliance is that the company will carry take ownership of the inventory much later in the supply chain. 5) Customer Perception - We believe that brand awareness and quality perception for RadioShack's Optimus private label audio video products was low. RCA's national brand recognition will greatly enhance product sales in this category, making RadioShack stores a one-stop-shop consumer electronic retailer. RadioShack will now be able to make sales in a product category that was traditionally lost to a superstore. In addition, RadioShack can immediately offer its high margin batteries, parts and accesories at the time of an A/V sale. This should help comps in the crucial 70% gross margin BP & A category. We believe this is another example of RadioShack leveraging the adjacencies of its products in its 2200 square foot box. 6) Square footage devoted to RCA store within a store will not change from current space allocated to Audio/Video sales. RadioShack will showcase, DVD, VCR, camcorder, bookshelf stereo systems, home theater systems, RCA direct TV, Speakers, Direct TV, LCD TVs, and small and mid-size TVs. All RCA products can be purchased at RadioShack but may not be displayed because of space constraint. 7) No DIVX - The status hasn't changed. This negotiation that has not progressed recently with Circuit City. Of course, the fact RCA is the brand in RadioShack, and RCA is a major supporter of Divx could help the Divx cause. 8) Impact on Circuit City and Best Buy - We believe incrementally this partnership is not good news for Circuit and Best Buy. These two companies now have a new competitor that is focused on selling A/V products. For example RadioShack rolling out a $299 DVD player adds 7000 locations to pruchase the same product being offered at Best Buy and Circuit City. This is an issue to watch very closely for Best Buy and Circuit City shareholders. Strong Audio/Video comps at RadioShack could adversely impact sales at other superstores. ----------------------------------------------------------------------------