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Another Analyst Gets Bearish on Sears (SHLD)

Tickers in this article: SHLD

NEW YORK (TheStreet) -- Things aren't looking good for Sears  after another investment firm casts doubts on its recovery. In a report Monday, Credit Suisse gave the struggling retailer an "underperform" rating with a $20 price target, turning bearish as it notes each quarter is seemingly worse than the previous one.

"Sears has turned its operations into a $1.2 billion negative cash flow story in 2013 (assuming similar January outflows from previous years). More important, as Sears passes off its good locations and its profitable segments, and loses market share to stronger retailers in its core franchises, the hope of this disaster turning around becomes remote," wrote analyst Gary Balter in the report.

For the fiscal year ending January, Credit Suisse estimates the company will see a net loss of between $6.05 and $8.25 a share and in the range of $4.78 to $6.84 a share in the year after. Analysts polled by Thomson Reuters anticipate a net loss of $6.20 a share this year and a loss of $5.72 a share in 2015.

Late last week, the Hoffman Estates, Ill.-based business provided an update on its quarter-to-date performance sending shares spiraling. Same-store sales as of Jan. 6 were down 7.4% compared to the same period a year earlier, a dismal result for the critically-important holiday shopping season. Sears Domestic same-store sales dropped 9.2% while Kmart experienced a 5.7% fall.

By way of comparison, in the third quarter ended October 2013, comparable store sales fell 3.1%, which included a 2.1% drop at Kmart and a 4% decrease at Sears Domestic.

With shoppers snubbing the store, Sears downgraded its fourth-quarter net loss guidance for the period ending Feb. 1 to between $2.01 and $2.98 a share. Analysts expected a far less severe loss of 20 cents a share.

Sears is due to release fully reported fourth-quarter and full-year results on Feb. 27.

On Monday, shares dipped 3% to $35.60. Since the beginning of the year, the stock has dropped 27.1%.

TheStreet Ratings team rates SEARS HOLDINGS CORP as a Sell with a ratings score of D. The 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 and poor profit margins."

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

  • The debt-to-equity ratio is very high at 2.51 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 0.12, which clearly demonstrates the inability to cover short-term cash needs.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. 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 23.34%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -6.45% trails that of the industry average.
  • 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.
  • The change in net income from the same quarter one year ago has significantly exceeded that of the Multiline Retail industry average, but is less than that of the S&P 500. The net income has decreased by 7.2% when compared to the same quarter one year ago, dropping from -$498.00 million to -$534.00 million.