Balter Finds More to Love About Sears' Stock

Sears(SHLD - Cramer's Take - Stockpickr) bulls continue to embrace the Ed Lampert mystique.

Newly hired Credit Suisse First Boston analyst Gary Balter pumped up his valuation on the merged retailer again Thursday. Initiating coverage on the stock, Balter assigned an outperform rating on Sears and hung a $180 price tag on the shares. That beats the target of $160 Balter set with his previous employer, UBS Investments, a few months ago.

The stock is a little more than $5 below the old target.

Balter likes the stock even while the company faces daunting challenges. He concedes that Sears can't compete with its retailing rivals and that its comps are likely to be in decline for years to come. The bull case comes down to Lampert, the hedge fund guru who orchestrated a windfall for investors last year after bringing Kmart out of bankruptcy.

The majority of trading in the retail sector these days is dictated by comparable store sales, or sales at a retailer's stores that have been open for at least a year. This measure allows analysts to factor out sales increases generated by new store growth, and gauge a retailing chain's ability to attract and retain customers. Most high-flying retail stocks, like Chico's (CHS - Cramer's Take - Stockpickr) and Starbucks (SBUX - Cramer's Take - Stockpickr), are powered by double-digit comp growth. On the other hand, investors are often quick to bail out when a retailer's comps turn negative, fearing a brand is losing market share to competitors.

Unlike most retailers, Sears doesn't provide monthly sales data. But its first-quarter numbers, released early this month, left much to be desired. The company reported a comps decline of 3.7% compared with the same quarter last year. That figure is presumably an approximation since Sears and Kmart were separate entities last year, but Balter said he expects the retailer's comps to decline by 4% for each over the next three years.