Sears Holdings Corp. stock faltered Thursday as Credit Suisse analyst Gary Balter ruminated about “The End” of the ailing retailer.
Shares of the company — which recently secured a $400 million loan from chairman and chief executive officer Edward Lampert’s ESL fund — fell 5.3 percent to $28 after the stock analyst invoked the Doors song “The End” in a research note.
Balter said Sears would see negative operating cash flow of $1 billion to $2 billion this year and that, “unless it sells off real assets while somehow maintaining the cash flow from those assets, this story is not likely to have a happy ending, and that ending continues to depend on suppliers.”
The analyst pointed to Sears’ weak second quarter — when losses before interest, taxes, depreciation and amortization sank to $313 million — and said the company came up with “no new potential financial tricks” beyond the potential, and potentially difficult, sale of its Canadian and automotive businesses.
That leaves the 2,300 Sears doors as a major source of value. But Balter noted that the loan from Lampert is secured by 25 of those doors.
“All of a sudden, as a vendor, one has to ask if cash flow is that tight that ESL needs to lend the money,” Balter said. “And why is it taking first dibs on so-called valuable real estate if that was what the vendors had counted on if things further deteriorate? As seen from the stock action, vendors realized that maybe all this negative cash flow will lead to more of these deals.”
Balter noted that some argue the value of the company’s assets outstrip the value of its stock, which has a market capitalization of $3 billion. He said he wasn’t sure about that, but that it wouldn’t be the case if shareholders can’t get at the company’s assets.
“While we don’t know where that will end, we end with the same argument we have been using for years now,” he said. “If the assets are worth that much, liquidate, as operating is taking over $10 a share of value away every year.”