Updated from 12:32 p.m. EDT
A stock call that some viewed as irresponsible in March is on the verge of making a genius out of Gary Balter, who recently pulled up stakes at UBS.
With Kmart trading at $120 as it awaited its merger with
, Balter told clients of UBS that the shares were going to $160. He cited "asset sales, cross-selling of proprietary brands and cost savings" opportunities that he believed might produce $5 billion of additional cash flow in coming years.
The call got a mixed reception. Kmart's valuation was already stretched by traditional measures, and Sears' business was reeling. That UBS had an investment banking relationship with Sears didn't help.
These days, Balter stands all but vindicated. Despite making almost no corporate disclosures since the call hit,
has traded above $157 for part of two straight days, touching $158.90 earlier Friday before backing down to a $154.08 close.
One of the few analysts on Wall Street who covered Kmart after it emerged from bankruptcy, Balter was neutral for a long time on a stock that refused to quit soaring despite creeping unease in the media.
The back story is well known. Money manager Ed Lampert brought the company out of bankruptcy two years ago with shares in the midteens. It doubled and then tripled in 2004 on a series of sweet real estate deals and optimism about the investment acumen of Lampert, whom some compare to Warren Buffett of
In October, Lampert struck a deal to merge Kmart with Sears, another ailing retailer in which he held a big stake. Kmart leapt toward $100 a share as speculation swirled about what would be done with Sears' real estate.
With the deal complete, Sears Holdings is operating below the radar, offering virtually no guidance to Wall Street about its financial progress. Indeed, one of the things lifting the stock recently has been a recurrent rumor that the company is about to report quarterly earnings.
Sears said after the close Friday that it will report sometime next week.
Meanwhile, no major asset sales have been announced. In fact, Lampert signaled that when the merger closed he did not plan to sell Lands' End, Sears' coveted catalog business that Balter posed as a potential sale.
Thomson First Call lists only two sell-side analysts covering the stock. As for Balter, his coverage of a slew of retailers was recently suspended at UBS. Reggie Cash, a media relations rep for the bank, said Balter is leaving the firm soon to join Credit Suisse First Boston. Victoria Harmon, a spokeswoman for CSFB, declined to comment on Balter, and Balter couldn't be reached.
Sears Holdings has now gained more than 58% in 2005. It's on the way to becoming Wall Street's biggest winner for the second year in a row. The same goes for Lampert, who was named as the highest-paid hedge fund manager in 2004 by a wide margin, earning an estimated income of $1 billion.
Balter's star is also shining, and anyone who took his advice is feeling pretty good. Now, how about those earnings?