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Sears (SHLD): Credit Suisse Warns Story Not Likely to Have Happy Ending

September 18, 2014 10:36 AM EDT
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Price: $33.30 --0%

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    0 Buy, 0 Hold, 3 Sell

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    Up: 10 | Down: 9 | New: 10
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Credit Suisse reiterated an Underperform rating on Sears Holdings (NASDAQ: SHLD) with a price target of $20. 2014/15 EPS was lowered to ($12.36)/($10.94) from ($6.84)/($4.94). Analyst Gary Balter said unless it sells off real assets while maintaining cash flow "this story is not likely to have a happy ending."

"Three events had to shake supplier confidence in the last month. First, Sears reported another disastrous quarter, with EBITDA well below even our pessimistic projections. Second, and more important, there were no new potential financing tricks up Sears' sleeve. It was the usual "sell off Canada" (ignoring that most of the good sites have already been sold and Target is losing more than imaginable in that market now) and maybe the automotive segment, which no one seems to want as it may be located next to an empty mall anchor in a few years. Third, Sears made a rather strange comment that it is not fully committing its apparel buys for Christmas at this stage, which to us says "we won't have anything that turns out to be popular, as the logistics make it hard to restock in time," said Balter.

"At least, the bulls argued, Sears still has access to all of its real estate, give or take the 125 Sears locations in its insurance subsidiary. However, that changed significantly with the $400 million effectively seasonal financing backed by ESL and secured by 25 locations. All of a sudden, as a vendor, one has to ask if cash flow is that tight that ESL needs to lend the money. And why is it taking first dibs on so-called valuable real estate if that was what the vendors had counted on if things further deteriorate? As seen from the stock action, vendors realized that maybe all this negative cash flow will lead to more of these deals. Will the remaining good assets, select Sears stores, some Kmart leases, and KCD be pledged as well to keep this money-losing business going?," continued the analyst.

"That seems bad for the vendors and for those bulls who continue to argue that the asset value is greater than the stock. We are not sure about that, but we are pretty sure that is not the case if the shareholders can't get those assets. While we don't know where that will end, we end with the same argument we have been using for years now. If the assets are worth that much, liquidate, as operating is taking over $10 a share of value away every year," he added.

For an analyst ratings summary and ratings history on Sears Holdings click here. For more ratings news on Sears Holdings click here.

Shares of Sears Holdings closed at $29.56 yesterday.



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