UBS downgraded shares of
Tuesday because of the retailer's weak sales.
Analyst Gary Balter believes there are "better opportunities available in retail" and called Sears a "higher risk story than competitors." As a result, he cut the company's investment rating to neutral from buy and lowered its price target from $61 to $50, which is about 12 times his 2004 EPS estimate of $4.20.
Upside to Sears' shares is lessening, Balter said. "The financial story has played out and retail improvements are required for the next move," he wrote in a research note.
The company can't find the right mix of promotional activity and "expanded presentation," he said. Sears' habit of heavy promotions does not bode well for long-term earnings. For example, Balter says the company can't sell its recently acquired Lands' End brand at the mall without discounting.
Balter also cited the company's negative same-store sales in recent years (excluding clearance months). He expects fourth-quarter same-store sales to fall 3%, after a 2.7% drop in October and a 3.6% decline in November.
On a positive note, however, Balter said the company's lawn and garden, tools and consumer electronics divisions were strong sellers in November.
"While the stock should continue to be supported by a share buyback, we have trouble finding the incremental investor that will drive it significantly higher," said Balter. (UBS does investment banking for Sears.)
He lowered his fourth-quarter EPS estimate to $1.58, excluding credit, from $1.87, and his 2004 EPS estimate is $4.20, down from $4.70. Consensus is for $2.59 a share in the fourth quarter and $4.83 a share for the full year.
Shares of Sears closed at $44.50 Monday on the
New York Stock Exchange