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Sears Holdings Corp (SHLD), J.C. Penney Company, Inc. (JCP): Is Billionaire Eddie Lampert Making Excuses?

Published on June 3, 2013 at 9:43 am by The Motley Fool in News

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Both Sears and Penney were considered small-cap stocks not too long ago, they have since diverged, with Sears rebounding, while Penney has been on the downhill slide.

So what’s the bigger picture look like?

	Price to sales
Sears	0.14
Wal-Mart	0.55
Target	0.62
Kohl’s	0.61
J.C. Penney	0.33

Sears and Penney are at the bottom of the barrel when it comes to valuation, Sears even more so than Penney; where Sears trades at a P/S multiple (0.14 times) that’s half that of Penney (0.33 times). However, in further breaking down the Sears-Penney saga, I find it interesting that Sears has one of the best balance sheets (from a debt standpoint) among all the major peers. This includes dwarfing Penney’s 103% long-term debt to equity.

	Debt to assets	Long-term debt to equity
Sears	19.40%	66%
Wal-Mart	28.20%	63.40%
Target	32.10%	83%
Kohl’s	32.20%	73.50%
J.C. Penney	36.80%	103%

Unlike billionaire Bill Ackman’s major investment in J.C. Penney Company, Inc. (NYSE:JCP), Lampert has much more control over Sears. Ackman owns some 16.5% of Penney’s outstanding shares (see Ackman’s latest moves). Yet, Lampert’s stake in Sears is 45%, and thus Lampert could enforce a number of asset sales at Sears and reallocate the proceeds to other areas.

Lampert’s hedge fund

Meanwhile, taking a look at what else Lampert and his $4 billion ESL Investments hedge fund has been up to, he failed to add to any of his positions and was actually dumping many of the stocks he owns besides Sears. A couple notable retail companies that he sold his entire stake in were Big Lots, Inc. (NYSE:BIG) and AutoZone, Inc. (NYSE:AZO). He also dumped his Safeway Inc. (NYSE:SWY) stake, 99% of his Capital One Financial Corp. (NYSE:COF) shares, 42% of iStar Financial Inc. (NYSE:SFI) shares and 30% of his Genworth Financial Inc (NYSE:GNW) shares (check out Lampert’s portfolio).

Big Lots, Inc. (NYSE:BIG) posted last quarter results of $2.09, compared to $1.75 for the same quarter last year and beating consensus of $1.99. Part of what has helped Big Lots continue to weather a poor economic environment includes low cost structure and alignment of products with customer preferences. Going forward, Big Lots hopes to increase its store count in areas with better co-tenant mixes.

Big Lots is expected to post fiscal 2014 sales up 2.4% year-over-year and U.S. same-store sales up 0.5%, compared to the 2.7% contraction in 2013. Big Lots is also on the cheap side, currently trading at 11.5 times earnings, compared to the 25.5 times industry average, and on the low end of its five-year range from 7 to 18.4 times.

AutoZone, Inc. (NYSE:AZO) is expected to see sales growth of 6.3% in fiscal 2013, following a 6.6% advance in 2012. The revenue move upwards will be thanks to the opening of some 200 new stores in the U.S., Mexico and Brazil. Last quarter, AutoZone managed to post EPS of $7.27, well above the year-ago quarter’s $6.28.

The industry tailwinds for AutoZone include the high age of vehicles on the road. As far as valuation goes, AutoZone is the cheapest, trading at 15.7 times earnings, while rival Advance Auto trades at 16.1 times and O’Reilly Automotive trades at 21.9 times.

Bottom line

Lampert still believes in Sears, and he has Berkowitz as a believer. I believe that Sears is a long-term value play and a better one than J.C. Penney. Meanwhile, Lampert’s sell-offs of Big Lots and AutoZone could prove premature; I believe that both could move higher.

The article Is Billionaire Eddie Lampert Making Excuses? originally appeared on Fool.com.

Marshall Hargrave owns shares of J.C. Penney Company. The Motley Fool owns shares of Big Lots. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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NYSE:AZO NYSE:BIG NYSE:JCP NASDAQ:SHLD Big Lots Inc (BIG)Autozone Inc. (AZO)J C Penney Co Inc (JCP)Sears Holdings Corp (SHLD)Show more...Show less