Sears Holding

Topics: Financial ratios, Balance sheet, Asset Pages: 24 (7505 words) Published: April 8, 2012
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 financial data and the ratio analysis of Sears and its competitors over the last five years, it is recommended to hold the stock. Introduction . Sears Holdings Corporation recognizes its poor performance over the years. In an effort to change its outlooks for the future, Sears has implements a variety of strategies. Sears has made leadership changes to improve its retail performance. The organization has noticed the importance of implementing technology and expanding its online presence. SHLD has expanded its online product selection to over 17 million products. In addition, it has started, which provides a “valet shopping” experience. It is offered in a limited amount of major cities, but will expand if successful. In an effort to increase investor returns, it has repurchased a significant amount of stock for it Sears Canada division. Based upon reviewing five years of historical financial data, historical stock prices, and future outlooks of the organization, it is recommended to hold the stock. Sears Holdings Corporation has not had any significant growth in the past few years. The market for which it operates is extremely competitive. It has constantly been outperformed by its competitors. The organization is making changes in an attempt to become more viable than what they have been in the past. Sears still holds a strong position in the large appliance division. Much of this business segment was affected by the economic downturn. However, with the economy improving and certain housing markets improving, it is predicted that this division will improve its performance. The projected target price is 77.10. This price reflects the opinion that the expectation of growth is minimal. It will take some time before the organization recognizes any benefits, if any, from its strategical changes. H

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