August 22, 2009
A Not Positive Outlook on Land's End Parent Sears Holdings
For many investors, the ultimate value of Sears resides in its liquidation value rather than the cash flow it can generate as a going concern. Much hidden value is seen in its valuable brands, like Kenmore, Land's End, Craftsman and DieHard, and the 73% interest in Sears Canada. A major holder "conservatively" estimates the retailer's breakup value at about $75 to $100 a share. (A confession: In an Oct. 22, 2007, article in Barron's, I surmised that there might be more than $300 a share in hidden value in Sears stock.)
Posted by James Zellmer at August 22, 2009 2:03 PM
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Given the recent performance of the company and the agonies of the U.S. consumer and credit markets, these sum-of-the-parts estimates have plummeted. In a May report, Morgan Stanley's Greg Melich came up with a value of $33 a share. Last week, he said that the new value would be somewhat but not dramatically higher when he releases his latest calculations in the next few weeks.
Nonetheless, the entire exercise is somewhat academic, according to Melich. Sears, for example, couldn't dump all its 250 million square feet of retail space without destroying the values of retailing properties for years to come. Likewise, who knows when shell-shocked mall-owning real-estate investment trusts and once-expansion-minded rivals like Target, Kohl's and Lowe's will be buying again, particularly with the current glut of space on the market and the drying up of mortgage financing. And the Kenmore, DieHard and Craftsman brands (but not Land's End) are so closely identified with Sears that it's difficult to ascribe much value to them if they are offered independent of Sears.