Sears Holdings Corp (NASDAQ:SHLD) dropped by more than 12% to $51 per share in after-hours trading after its sluggish first-quarter earnings results, which were much worse than analysts’ estimates. Even after the significant decline, Sears Holdings Corp (NASDAQ:SHLD) has risen by around 27.5% this year. Should investors take advantage of the recent drop to accumulate Sears? Or should we stay away from the company for now?
In the first quarter, Sears Holdings Corp (NASDAQ:SHLD) witnessed a deteriorating performance in both top and bottom lines. Revenue declined 8.6% to around $8.5 billion, while net loss was $279 million, or a loss of $2.63 per share, much lower than the profit of $189 million, or $1.78 per share, in the same quarter last year. According to the company, the decline in revenue for the quarter was due to fewer Sears Full-line and Kmart stores, lower comparable store sales, and the spin-off of Sears Hometown and Outlet operations.
Sears Holdings Corp (NASDAQ:SHLD) Chairman and CEO, Eddie Lampert, cited a sluggish first quarter operating performance as being unacceptable. He commented that the company that had similar size and assets should have produced significant profit. He said in the recent conference call: “I do not subscribe to the view that the macro factors are the sole reason for our poor performance. They have an impact, but even with that impact, we should be doing a lot better than we are.”
Sears should be worth $160 per share
Successful investor Bruce Berkowitz has been quite bullish about the company due to its significant real estate holdings and merchandise inventory. As of March 2013, he owned more than 19.5 million shares, accounting for 12.4% of his total portfolio. He estimates a fair value of $160 per share for Sears if its real estate assets were fully valued on its balance sheet. At $51 per share, Sears is valued at only 14% of its sales.
And it is cheapest valued
Compared to other struggling retailers including J.C. Penney Company, Inc. (NYSE:JCP) and Target Corporation (NYSE:TGT), Sears Holdings Corp (NASDAQ:SHLD) seems to be the cheapest in terms of price-to-sales valuation. J.C. Penney Company, Inc. (NYSE:JCP) is trading at around $19.40 per share with a total market cap of nearly $4.3 billion. The market values J.C. Penney at 33% of its sales. J.C. Penney has been in the process of turning itself around. Recently, billionaire George Soros showed his bullish attitude towards the company, purchasing more than 17 million shares, a 7.9% stake in the company. What investors should notice is that George Soros filed a 13G filing, not 13D filing. Thus, George Soros did not consider J.C. Penney as an activist investment, but a passive one.
Recently, the company announced that it had entered a new five-year senior secured term loan credit facility of $2.25 billion, higher than the previous predicted amount of $1.75 billion. The recent loan credit facility would give J.C. Penney Company, Inc. (NYSE:JCP) more strength and flexibility to turn the company around towards the profitability.