Revisiting Sears, Salvation Is Near (SHLD)

Sears Holdings Corporation (NASDAQ: SHLD) is trading up sharply this morning after the retailer and part-time hedge fund managed to post positive earnings after the close on Thursday.  This is a stock we had called as a retail stock to double by the end of the recession just on March 11.  We now face a dilemma over where the fair value of the company is after we have seen almost all of our upside price targets achieved eighteen months sooner then we expected.

Eddie Lampert and friends posted a Q1 profit of $26 million, or $0.21 EPS rather than a loss expected and above a $56 million loss a year ago. Revenue fell almost 10% to $10.06 billion,  from $11.07 billion last year.  At 8:21 AM EST we have seen almost 60,000 shares trade hands, and the last print was up around 23% at $61.78.  That compares to a $50.19 close yesterday.

As per our doubling thesis, a doubling from its true lows would take this to $53.60, but a doubling from the most recent lows we were using at the time would take Sears to $68.00.  This morning we are seeing a surge in trading volume and shares are up 23% around $62.00 in early pre-market trading.

We called it an atrocious retailer, but noted that the worst might be over on a relative performance basis compared to peers ad noted that it traded at a discount to its past tangible book value with an an embedded call option in real estate which was prime dirt.

The 52-week trading range for Sears is $26.80 to $108.75.

JON C. OGG
MAY 22, 2009