New Sears Mystifies Analysts Stock Jumps after Earnings Far Exceed Experts' Expectations

By Comerford, Mike | Daily Herald (Arlington Heights, IL), May 19, 2006 | Go to article overview

New Sears Mystifies Analysts Stock Jumps after Earnings Far Exceed Experts' Expectations


Comerford, Mike, Daily Herald (Arlington Heights, IL)


Byline: Mike Comerford Daily Herald Business Writer

Lots of people think they know Sears - we grew up with its appliances and clothes.

Yet even those who closest follow the retail department store chain these days get it wrong.

Sears, Roebuck and Co. morphed last year into Sears Holdings Corp. upon its merger with Kmart and it has mystified analysts ever since.

Sears Holdings on Thursday surprised Wall Street with quarterly earnings 75 percent higher than the consensus estimate of analysts, according to Thompson Financial.

As a result, Sears shares soared $17.89, or 13 percent, to $155.85 on the Nasdaq Stock Market.

Why were Wall Street analysts so wrong about Sears and who can be trusted to analyze Sears' future?

There appears to be a sharp divide between retail analysts and Wall Street analysts.

"I can't tell you what (Wall Street analysts) are looking at," said Howard Davidowitz, chairman of Davidowitz & Associates, a New York City-based retail consulting and investment banking firm.

Equity analyst Kim Picciola doesn't make quarterly earnings estimates, but acknowledges how wrong Wall Street was this time around.

At the same time, Sears same-store sales fell 8.4 percent for the quarter and the holding company's revenue fell 12 percent. Some analysts question how long earnings can be propped up by cost cutting if sales continue to fall.

"Looking at (Sears) purely as a retailer, it looks bleak," said Picciola, analyst for Chicago-based Morningstar Inc. "But if you look at (Sears) as a real estate or other business that it can transform into, there are other options more on the upside. That's why people are investing in the stock."

Clearly, some analysts on Thursday were happy Wall Street estimates of Sears earnings were wrong.

"We continue to view Sears as an undervalued turnaround story," said Gary Balter, a Credit Suisse analyst, in a report. …

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