Sears (SHLD) Could be a Near Double - Barron's

August 13, 2012 8:10 AM EDT
Shares of Sears (Nasdaq: SHLD) are surging in pre-open trading Monday following a rare recommendation to buy the stock from Barron's this weekend.

While bears see the company ultimately filing bankruptcy or pursing an "equity-decimating restructuring," a growing bull camp is focusing on the value of assets including the Kenmore and Craftsman brands, and its owned and leased real-estate holdings.

The value of Sears may lie in KCD, a unit where Chairman and controlling shareholder Eddie Lampert has put the company's crown jewels including Kenmore, Craftsman, and DieHard brands. Lampert has also taken care to separate Sears into "guarantor" and "non-guarantor" subsidiaries and importantly KCD and a unit housing 125 properties leased to Sears aren't guarantors.

Hedge fund analyst Cliff Orr notes that loan documents indicate that KCD and other non-guarantor subs generate more than $600 million in free cash flow annually.

Orr sees "substantial" unappreciated value in Sears' real estate. Many buildings are decades old and carry antiquated valuations on the books. Also, the company's mall stores have long-term leases at prices well below market rates. Landlords could be tempted to buy them out and repurpose the space.

With the risk-reward compelling, Orr sees shares of Sears worth at least $100 per share.

Shares of Sears last traded at $54 in pre-open action Monday, up 5 percent.

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