Deteriorating performance
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.
Target Corporation (NYSE:TGT) is the biggest company of the trio with $44 billion in total market cap. At $68.70 per share, it also valued the most expensive among the three companies. It is valued at 0.6 times its sales. In the first quarter of 2013, Target Corporation (NYSE:TGT) also announced earnings results that were below expectations. Its net income for the first quarter came in at $498 million, or $0.77 per share, 26% lower than the net income of $697 million, or $1.04 per share, in the same quarter last year.
The EPS included $0.36 per share accounting gains due to the sales of the consumer credit receivables portfolio to . In the first quarter, the company reported that it has returned nearly $780 million to shareholders via dividends and share repurchases. The sluggish first-quarter earnings were due to “softer-than-expected sales, particularly in apparel and other seasonal and weather-sensitive categories.” For the full year, Target expects to generate $4.12 to $4.32 in EPS.
My Foolish take
Among the three, I like Sears Holdings Corp (NASDAQ:SHLD) the most due to its huge real estate and merchandise inventory assets. Moreover, it is trading at a significant discount of 50% to J.C. Penney, the other struggling retailer based on sales valuation level. I think at its current trading price, Sears offers wide margin of safety for patient investors.
The article This Stock Is Quite Cheap Now originally appeared on Fool.com and is written by Anh HOANG.
Anh HOANG owns shares of Sears Holdings. The Motley Fool has no position in any of the stocks mentioned. Anh 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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