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What's Making Sears (SHLD) Pop? (Update 1)

Stocks in this article: SHLD

Update from 11:23 a.m. EDT: Updated share price in second paragraph and added Sears spokesperson's comments in third paragraph.

NEW YORK (TheStreet) -- Sears Holdings (SHLD) is popping on rumors CEO Eddie Lampert has taken actions to sell off more of the company's Canadian stores. The New York Post reported on Sunday Lampert is speaking with several banks, including Goldman Sachs, to sell its north-of-the-border assets.

By midday, shares were up 3.9% to $63.75. Year to date, the retailer has climbed 54.1%, surpassing the S&P 500's 26.6% gain.

Sears subsequently denied those rumors. Howard Riefs, Sears director of corporate communications, told TheStreet, "It is false to claim that Mr. Lampert, the CEO of Sears Holdings, is interviewing or otherwise is in talks with investment bankers about Sears Holdings' interest in Sears Canada.

"Sears Holdings reiterates its October 29, 2013 statement that Sears Holdings will work with the board and management of Sears Canada with a goal of increasing the value of our 51% interest and realizing significant cash proceeds to support our transformation."

Last week, Lampert, also the company's chairman and largest shareholder, told Reuters the struggling retailer will seek to close more stores in 2014. Since 2010, the company which owns Sears-branded stores and Kmart has closed around 300 U.S. stores.

Sears reported worse-than-expected third-quarter earnings last week. The Hoffman Estates, Illinois-based business reported a net loss of $5.03 a share, compared to a loss of $3.13 expected by analysts surveyed by Thomson Reuters.

TheStreet Ratings team rates Sears Holding Corp as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate Sears Holding Corp  (SHLD) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk, disappointing return on equity and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Multiline Retail industry. The net income has significantly decreased by 47% when compared to the same quarter one year ago, falling from -$132 million to -$194 million.
  • Currently the debt-to-equity ratio of 1.59 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.15, which clearly demonstrates the inability to cover short-term cash needs.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Multiline Retail industry and the overall market, Sears Holding Corp's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for Sears Holding Corp  is rather low; currently it is at 24.64%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -2.18% trails that of the industry average.
  • SHLD, with its decline in revenue, underperformed when compared the industry average of 5.4%. Since the same quarter one year prior, revenues slightly dropped by 6.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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