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2HRS2GO: Analysts argue over Tandy


Merrill Lynch cast itself in the role of Mighty Mouse for Tandy (NYSE: TAN) this morning after the stock took a hit on a PaineWebber downgrade. The latest Merrill note sent shares of Tandy up 3/4 to 46 1/2 by early afternoon. There's still a long way to recover from their 8 percent tumble yesterday, but it's not a bad performance considering the overall market's doldrums.

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PaineWebber removed Tandy from the Highlighted Stocks list after analyst Aram Rubinson reduced his TAN rating to "neutral", which is Streetspeak for "Get out now". (A "sell" rating can be translated as "You haven't gotten out yet? Hah, too late for you.")

Rubinson fears Radio Shack's DirecTV business will suffer, because DirecTV's parent, Hughes Electronics (NYSE: GMH), signed a marketing and distribution deal with Blockbuster (NYSE: BBI). The analyst, noting that DirecTV generates 7 percent of Tandy's product sales, lowered his 2001 earnings estimate for TAN to $2.05 from $2.08 per share.

Bah, counters Merrill Lynch analyst Peter Caruso, who removed his glove and used it to slap Rubinson across the face. Or at least Merrill Lynch did the Wall Street equivalent: the firm not only reiterated a "buy" rating on TAN, but added the stock to its Focus-1 List.

You might wonder if Tandy executives got on the phone to drum up some Wall Street support, or if the company did something to irritate PaineWebber in the first place. But who really cares?

The motivation behind these reports shouldn't matter. Investors -- and more important to the brokerage firms, institutional clients -- can make their own judgements about whether the report's assertions make sense or not.

Caruso argues Blockbuster won't harm Tandy. Radio Shack has done well with satellite TV despite competition from Wal-Mart (NYSE: WMT), Target (NYSE: TGT), Costco Wholesale (Nasdaq: COST), Circuit City (NYSE: CC) and Best Buy (NYSE: BBY) Caruso notes.

"Will Blockbuster get some share? It should; however, it will not likely be a disproportionate share, by our judgment," he writes. "And it is only disproportionate shares that tend to stunt future growth rates."

Wal-Mart, Target and Costco haven't dented the DirecTV market because satellite television requires a high level of customer service, Caruso says. "We think this will be similiar scenario at Blockbuster," he says.

Leaving Blockbuster aside, Tandy will see a boost from RCA consumer electronics, Caruso says. That deal should start producing revenue this quarter.

"That represents a competitive shift of very important magnitude that investors should benchmark against the very unimportant Blockbuster/DirecTV development that caused yesterday's stock price correction," Caruso writes.

Caruso is probably right in saying RCA will generate significant sales, but on the other hand, wouldn't analysts already have that factored into their estimates? Those plans for an RCA "store-within-a-store" were announced nearly a year ago. Not exactly news.

But it also seems premature to point to Blockbuster as a source of ill for Radio Shack. Places like Circuit City and Radio Shack know how to sell electronics hardware. And Blockbuster? It's more than a small leap to go from renting video tapes to hawking dishes that cost hundreds of dollars and require some expertise to install.

So it's hard to take either side too seriously in this little analyst argument. 22GO>