Why Sears Holdings (SHLD) Stock Is Plummeting Today

NEW YORK (TheStreet) -- Sears Holdings Corp (SHLD) shares plummeted 17.9% to $41.20 in trading on Monday.

The steep drop comes on the first day of trading since Friday night's completion of its pro-rata spin-off of Lands' End Inc  (LEDMV) from Sears Holdings.

Sears received $500 million in aggregate gross proceeds from the move, while distributing 32 million shares of Lands' End to its common stock holders.

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The drop can be attributed to the loss of value from the Lands' End spin-off which is now trading independently, down 0.4% to $31.67 on Monday. 

Sears, however, has endured $5.4 billion in losses over the last three years including $1.4 billion in losses in 2013.

TheStreet Ratings team rates SEARS HOLDINGS CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate SEARS HOLDINGS CORP (SHLD) a SELL. This is driven by several 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 generally high debt management risk, disappointing return on equity, poor profit margins and weak operating cash flow."

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

  • The debt-to-equity ratio is very high at 2.44 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.19, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Multiline Retail industry and the overall market, SEARS HOLDINGS CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for SEARS HOLDINGS CORP is rather low; currently it is at 23.43%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -3.37% trails that of the industry average.
  • Net operating cash flow has decreased to $563.00 million or 42.43% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • In its most recent trading session, SHLD has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
  • You can view the full analysis from the report here: SHLD Ratings Report
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