Sears Holding
Extraordinary Items Recommendation HOLD
Executive Summary . Because Sears Holdings has performed poorly in the past, it has made leadership changes, new technology implementations, and expanded its online product selection, among other improvements. Based on these developments and the improving economic conditions, the projected target price for Sears is $77.10, based on the price/earnings ratio as a valuation model. After examining key financial data, it can be concluded that Sears’ sales ratio is expected to decrease by 2.61%, its cost of revenue will increase by 0.3%, and the gross margin percentage is expected to increase to 27.5% in the future. Also, the depreciation expense is expected to decrease by 1.8%, its unusual income rate will stay steady, and the interest income will decline by 25% in the next year. Sears’ investment income will increase by 8%, the income tax rate is projected to be 24.3%, and minority interest will decrease by 10% in 2011. After evaluating the risk of Sears’ stock, it has been determined that the stock has a very high risk. As for the per share information, Sears has undervalued stock and a shortage of cash based on free cash flow, and its book value per share is well above the industry average. Based on the liquidity ratios used, Sears operates with an average liquidity level in comparison to its competitors. The debt management ratios used indicate that Sears manages its debt better than almost all of its top competitors, but it has about an average level of interest coverage. Sears’ return on assets, return on equity, and return on investment is worse than those of its competitors. However, Sears’ total asset turnover is better than its competitors, while it performed below its competitors in receivables turnover and inventory turnover. Based on the key
Executive Summary . Because Sears Holdings has performed poorly in the past, it has made leadership changes, new technology implementations, and expanded its online product selection, among other improvements. Based on these developments and the improving economic conditions, the projected target price for Sears is $77.10, based on the price/earnings ratio as a valuation model. After examining key financial data, it can be concluded that Sears’ sales ratio is expected to decrease by 2.61%, its cost of revenue will increase by 0.3%, and the gross margin percentage is expected to increase to 27.5% in the future. Also, the depreciation expense is expected to decrease by 1.8%, its unusual income rate will stay steady, and the interest income will decline by 25% in the next year. Sears’ investment income will increase by 8%, the income tax rate is projected to be 24.3%, and minority interest will decrease by 10% in 2011. After evaluating the risk of Sears’ stock, it has been determined that the stock has a very high risk. As for the per share information, Sears has undervalued stock and a shortage of cash based on free cash flow, and its book value per share is well above the industry average. Based on the liquidity ratios used, Sears operates with an average liquidity level in comparison to its competitors. The debt management ratios used indicate that Sears manages its debt better than almost all of its top competitors, but it has about an average level of interest coverage. Sears’ return on assets, return on equity, and return on investment is worse than those of its competitors. However, Sears’ total asset turnover is better than its competitors, while it performed below its competitors in receivables turnover and inventory turnover. Based on the key