Daily Archives: October 21, 2007

Sears..Barron’s May Have Understated Upside (SHLD, CC, TGT, SPG)

Sears Holdings Corp. (NASDAQ:SHLD) enjoyed a meteoric rise from 2003 to 2005, but now the company is facing the dead money status for investors after recently hitting near-term lows.  Eddie Lampert knows that this current status wasn’t the end-game goal.  This weekend’s issue of Barron’s points out the understated value of Sears.

The Barron’s article does a good job of pointing out the upside and the contingencies here.  The one issue that exists is that Sears as a retail player just isn’t doing that well and 24/7 Wall St. has pointed out how poor of a retailer it is.  But there is lot more to the story that we have been investigating for subscribers of our Special Situation Investing Newsletter which might imply close to a doubling of shares if the company makes the right calls.  There is the shot of a REIT-qualification aspect to Sears, but that will be another discussion at a different time.

Some of the factors that are working against the company are actually not the fault of the company.  And some are.  In fact, if you were going to evaluate the macro-scenario here we’d go ahead and warn the Sears permabulls that the raw numbers out of Eddie Lampert’s retail empire may have another 18 to 24 months of having to stomach poor retail results.  In its latest fiscal year, Sears mustered margins of 4.74%, in comparison to Penney’s 9.66%, Target’s 8.76% and Kohl’s’ 11.7%.

Sears_valuation_targets_2But there are two companies here that we believe will be the savior of the otherwise poor situation: Simon Property (NYSE:SPG) and Target (NYSE:TGT).  Simon is a very expensive stock with premium mall and shopping operations and it would be able to acquire the dirt owned and under long-term leases for a fay cry short of the lofty valuations of each square foot it owns.  It recently raised cash as well.  Target (NYSE:TGT) has already expressed that it outright wants to continue its current expansion and outlined a 25% increase in stores over the next few years. 

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Posted on: October 21, 2007 – 11:26 am in Retail, , , , , , ,

For Boston Scientific And JNJ, The Stent Stats Get Worse

"William O’Neill, dean of clinical affairs at University of Miami’sMiller School of Medicine, says stent-patient traffic is beginning topick up in South Florida. Still, restoring luster to the popular deviceis likely to be an uphill battle," The Wall Street Journal reports.

Johnson & Johnson (JNJ) reported that sales of its drug-coated stents dropped 40% in the third quarter. For Boston Scientific (BSX), that number was 24%. Drug coated stents are much more expensive that the older, bare metal version, and they have a much higher profit margin.

But, new concerns about the chance that the drug-coated device can cause clots has lead patients to seek other treatments including the use of drugs to thin blood and open arteries. A little over a year ago, 90% of stents put into patients were drug-coated. That figure is down to 60%.

That is a lot of revenue and especially profit lost by the two companies. JNJ is fairly diversified beyond the stent business, about BSX less so.

Boston Scientific just laid off over 2,000 people. That may not be the end of it.

Douglas A. McIntyre

Posted on: October 21, 2007 – 10:17 am in Medical, ,

UAW Attack On Chrysler Puts Pressure On Ford (F)

As the days pass and the UAW members vote on the union’s proposed deal with Chrysler, it appears that the agreement could be defeated. The Wall Street Journal writes that "workers at least three other plants have also rejected the contract inthe last few days, endangering the union leadership’s bid to get thedeal ratified."

Chrysler management has not promised to build any new plants in the US going forward. The company also wants to keep some manufacturing in Mexico. Workers think that if they are going to move to a two-tiered pay scale and make other sacrifices that Chrysler should be willing to put more on the table.

The unspoken resistance to the Chrysler deal may be that, backed by big hedge fund money, the union believes that this is the time to get concessions, while the owners are new and don’t to pay for a prolonged strike.

The big loser, if the deal is voted down, is Ford (F). Now that GM (GM) has a contract to its liking, it can move ahead with lower annual labor costs. GM has also shown that its cars are selling better with two strong months of results behind it. Ford’s sales in the last two months have run down almost 20%.

Ford is certainly in worse shape than GM is in terms of costs, new products, and sales. Chrysler has backers that can afford to keep the company going, even during a strike, if they choose to. If Ford cannot come to a reasonable deal with workers because the UAW has successfully bullied Chrysler, the company could face a cost disadvantage that it is in no shape to bear.

Douglas A. McIntyre

Posted on: October 21, 2007 – 10:09 am in Autos, ,