Sears Buyback & Bear Stearns Incompetence

After recommending investors buy Northwest Airlines (NWAC) stock at $5.00 less than a month ago, today Bear Streans downgraded the stock to a sell, after yesterday’s bankruptcy rumors sent the stock down as much as 60 percent to $1.57 per share. Amazingly (well, maybe not given this analyst’s track record) NWAC stock is up 25 percent today as some investors bet Northwest will temporarily avoid filing Chapter 11 this week by using that possiblity to reach an agreement with its mechanics on wage consessions. It would be hilarious if Bear’s sell call marked the bottom in NWAC and the stock actually rose significantly after news of a deal. At that point, Bear would probably upgrade the stock just in time for the company to file bankruptcy.

Although the stock isn’t really reacting to the news, Sears Holdings (SHLD) today announced a $500 million stock repurchase plan. This represents 2.3% of the company’s total shares outstanding. These are the kinds of things SHLD management will do to enhance shareholder value through the use of its free cash flow. They will not use the money to mimic other retailers that open new stores. Rather they will try and increase the profitability of existing stores and use that money to boost the stock price.

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3 Thoughts on “Sears Buyback & Bear Stearns Incompetence

  1. Chad Brand on September 14, 2005 at 11:48 AM said:

    Yet another Sears development announced today. Sears Canada plans to pay $1.7 billion USD out as a cash dividend as a result of proceeds from the sale of its credit card division.

    Sears Holdings owns 54% of Sears Canada, so SHLD will net more than $900 million cash from the one-time dividend.

  2. David Hopkins on September 16, 2005 at 12:39 PM said:

    I hear what you are saying but it does leave one to wonder about the ultimate long-term viability of the company. Is this any way to compete with WMT, TGT, et al? I certainly can applaud financial discipline but it seems to me that SHLD is stuck in retail no man’s land.

  3. Chad Brand on September 16, 2005 at 12:48 PM said:

    I agree that right now the company is in no man’s land, that’s a good analogy. You’ve got Sears, Kmart, and now Sears Essentials. I think ultimately Kmart goes away completely and you are left with the Sears name and a traditional department store. It will hopefully be a smaller, slimmer, version of the old Sears, which can make a nice profit. Lots of options, but given that they have such a huge base of these stores to attend to, it’s going to take a lot of time to narrow down the focus.

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