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Lands' End is No Bargain in Trading Debut

Stocks in this article: LE SHLD


Sears has not only seen its revenue decline as it has shed assets - almost $36.2 billion fiscal 2013, compared to nearly $39.9 billion for the same period a year prior - but also its adjusted Ebitda plummet: negative $337 million in fiscal 2013 as compared to $536 million to the positive in 2012.

And Sears' drive to monetize assets is based, in part, on its cash burn. This year it said it plans to raise total liquidity of $1 billion, half of which came from the Lands' End dividend, to cover cash interest expense, pension obligations and capital expenditures.

Yet, despite investor fears about the separation, Sears still has significant assets. Among assets Sears has left to monetize if it needs to is a real estate portfolio conservatively estimated at over $2 billion; Sears Auto Center; its warranty business; the 51% stake in Sears Canada that has a market cap of C$1.7 billion ($1.5 billion); as well as the Craftsman, Diehard and Kenmore brands.

The Kenmore, Craftsman and Diehard brands would generously be valued at about $1.1 billion after paying off the debt backed by those assets, according to analyst Mary Ross Gilbert of Imperial Capital.

The warranty business, on the other hand, might be worth about $800 million. But Gilbert said Sears Holdings has not mentioned the warranty business as an option recently, so there may no longer be plans to monetize it. And Sears Auto Center has a valuation of approximately $666 million, the analyst said in a June report.

Gilbert said, however, she doubts Sears Holdings will spin off Kmart, as it does not make money. "I can't see that scenario," she added.

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