Is Sears Holdings Corporation (SHLD) a Decent Purchase Now?

A Real Estate, not a Retail Play

Bruce Berkowitz has also been interested in Sears. He has accumulated nearly 17 million shares in the company, accounting for 13.4% of the company. The investment in Sears was the real estate play, not the retail play. Sears was worth just the liquidation of its merchandise. So by buying Sears, investors would get everything else for free, the real estate, the brands. Putting the retail aside, Berkowitz pointed out the undervaluation. He mentioned that Sears had more real estate than Simon Property Group, Inc (NYSE:SPG), which was valued at more than 10x the current value of Sears.

Compared to its peers, including Target Corporation(NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT), Sears didn’t have a decent operating performance. It reported negative operating margin, whereas the operating margin of Target and Wal-Mart were 7% and 6%, respectively. Sears had a high EBITDA multiple of 17.3x. Target and Wal-Mart have similar EV/EBITDA, of 7.61x and 7.72x, respectively. However, when growth is taken into account, Sears is the cheapest, with only 0.1x PEG. Wal-Mart has the highest PEG of 1.5x, and Target’s PEG is 1.17x.

My Foolish Take

Investing in Sears is not a retail play, but a real estate play. The breakup value of its real estate is certainly a lot higher than the current price. However, it would take time, and investors need to rely on management to unlock the hidden real estate value in Sears. I personally think Sears could be a decent investment opportunity for patient investors.

The article Is Sears a Decent Purchase Now? originally appeared on Fool.com.

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