While Sears Holdings has had a spate of bad luck lately, beginning with its poor holiday performance and subsequent announcement that it would be shuttering up to 120 of its Sears and Kmart stores, the company’s stock has been soaring. Shares of Sears Holdings have jumped some 49% so far this year, making it the best performer among companies in the S&P 500, according S&P Capital IQ.
That’s quite the turnaround from even December when Sears Holdings made the list of the 10 worst stocks of 2011, a year where it saw its shares plummet 56%.
What’s responsible for the big turnaround? Retail analysts point to several factors. CIT Group, a major factoring agency which supposedly cut off loans to Sears’ suppliers, now may be lending to its vendors again.
Then there are the rumors that Edward Lampert, Sears’ chairman, who controls nearly 60% of the company’s stock, may be posturing to take the company private. Earlier this month he added another $130 million shares of the company’s stock to his holdings through his ESL Investment hedge fund.
“When you see the chairman out there buying blocks of stock that gives investors’ confidence,” Mickey Klein, managing director and co-founder of the Astor Group, a global investment firm, told MSNBC this week. “He’s giving the company a price boost to give it some time to make improvements.”
‘Cannot Justify Current Stock Price’
But some analysts don’t buy it. Among the chief critics is Credit Suisse analyst Gary Balter.
“We do not see Sears or Kmart turning around their operations to the point that they generate positive cash flow or enough to justify the current stock price,” Balter wrote in a note to clients.
Instead Balter and other analysts think the Sears stock is in “a short squeeze.” In a short sale, traders borrow shares and sell them, hoping they can buy the shares back in the future at a lower price and return them, pocketing the difference as profit. Now they are “being forced to buy more stock in order to protect themselves from what, at the moment, seems to be a mistaken bet against Sears.”
“We are stuck in a classic short squeeze, a squeeze that given the float we do not even harbor to speculate when it may end,” Balter said. “How the stock moves in the short term is a good question as with so little float, and no stock available to short, this squeeze could go on for awhile. However, when it ends, we would not wish to be on the other side, as we don’t see the value for the equity above our $20 target price.” (The current price is about $43.63 a share)
“There are four days you do not want to own (Sears) stock and those are the four quarterly earnings days,’’ Balter wrote. “Other than those, this stock seems to live off of stories, with the latest being that a leveraged buyout is ahead.’’
Rick Aristotle Munarriz, analyst at the Motley Fool, added,“The irony for the poor saps bidding up the stock this month is that it will get to the point where Lampert may prefer to be a seller than a buyer. He gobbled up some shares earlier this month when the stock was much cheaper. Why would a shrewd hedge fund manager buy a dying Sears Holdings whole now?”