SHLDQ - Sears Holdings Corp

[accutronman]

From Credit Suisse analysis:

 

J.C. Penney, in its presentation to potential investors on its debt offering,

includes a detailed real estate valuation prepared by a leading real estate

firm that gives us some insight into valuing Sears’s portfolio. Using that, and

with significant assumptions on the value of leased stores, the mix of the

portfolio relative to JCP, and valuations for Kmart, we have sharpened our

previous sum-of-the-parts analysis for SHLD. Using JCP as a guide, we are

lowering our breakup value to a range of $16 to $60 for the asset value. The

wide range primarily reflects the value of many of the leased properties and

the likelihood that closing stores will cost money.

 

■ In doing the above, we used the dark or closed stores analysis from the JCP

presentation, as that would be the way these stores are valued. Inside we

show our analysis, which we highlight has significant assumptions built in.

 

■ Two clear caveats in applying JCP’s analysis to Sears. First, we believe

Sears has a select number of trophy properties, where the zoning would

allow for redevelopment of the site at a significant profit to Sears. Knowing

how many of these sites exist is the question mark, but there could be as

many as 50 sites at $100+ per square foot. Second, offsetting the above, we

believe the JCP analysis was overly generous in its C and D mall grade

values, as we view those as zero or below, and we believe Sears has more

of those between its two brands than Penney does.

 

■ We continue to expect that SHLD will spin off or sell Lands’ End and Sears

Canada and sell a few stores. The company has indicated its intent to create

$500 million of liquidity this year, in addition to $300 million of cash

generated from carrying less inventory, so we will see how they create this

value. We note that we expect operations to generate negative $5 per share

in value, implying that should the breakup value be greater than the current

stock price that now would be an opportune time to start extracting value.

[Guest hellsten]

What the heck is going to happen to the shorts if Sears reports a surprise to the upside next quarter???

 

My guess is something similar to what happened with OSTK and TSLA stocks.

 

It seems Baker Street Capital also owns some SHLD options:

http://www.sec.gov/Archives/edgar/data/1488207/000092189513001081/form13fhr07950_03312013.txt

[muscleman]

What the heck is going to happen to the shorts if Sears reports a surprise to the upside next quarter???

 

My guess is something similar to what happened with OSTK and TSLA stocks.

 

It seems Baker Street Capital also owns some SHLD options:

http://www.sec.gov/Archives/edgar/data/1488207/000092189513001081/form13fhr07950_03312013.txt

 

Is the data correct?

 

http://whalewisdom.com/filer/baker-street-capital-management-llc

 

Baker Street put in 81% of their money into one call option?

I guess it is 7 million shares equivalent, which should be 70,000 call options, right?

[muscleman]

That 30% is percent of the float not percent of total shares outstanding.

 

Correct. Only 7.8 Million shares are shorted.

[Sunrider]

What the heck is going to happen to the shorts if Sears reports a surprise to the upside next quarter???

 

My guess is something similar to what happened with OSTK and TSLA stocks.

 

It seems Baker Street Capital also owns some SHLD options:

http://www.sec.gov/Archives/edgar/data/1488207/000092189513001081/form13fhr07950_03312013.txt

 

Is the data correct?

 

http://whalewisdom.com/filer/baker-street-capital-management-llc

 

Baker Street put in 81% of their money into one call option?

I guess it is 7 million shares equivalent, which should be 70,000 call options, right?

 

Very odd. Is there any way to find out which calls (expiry/strike)?

 

[Sunrider]

their last 13g indicates that includes 7m shares underlying options exercisable within 60days - and that was on Feb 19th. Still odd. When are the next results due? What do they expect to happen in the next ... month?

 

 

What the heck is going to happen to the shorts if Sears reports a surprise to the upside next quarter???

 

My guess is something similar to what happened with OSTK and TSLA stocks.

 

It seems Baker Street Capital also owns some SHLD options:

http://www.sec.gov/Archives/edgar/data/1488207/000092189513001081/form13fhr07950_03312013.txt

 

Is the data correct?

 

http://whalewisdom.com/filer/baker-street-capital-management-llc

 

Baker Street put in 81% of their money into one call option?

I guess it is 7 million shares equivalent, which should be 70,000 call options, right?

 

Very odd. Is there any way to find out which calls (expiry/strike)?

[Guest hellsten]

Old West Investment Management's comments on SHLD from June 2011:

http://www.oldwestim.com/files/media/Download%20this%20site/Commentaries%20and%20Investor%20Letters%202013.02.04.pdf

 

To sum it up, we believe that Eddie Lampert has found

the perfect arbitrage: by using conservative, consolidated accounting and refusing to correct Wall Street’s

analytical mistakes, he has been able to attractively buy back a majority of the shares he doesn’t own in the

company that he knows better than anyone else.

 

…

 

We have recently stopped lending

out our shares because we are increasingly concerned that there could be a fail-to-deliver problem if there

happens to be a short squeeze based on the market better recognizing the company’s underlying value as a

result of real estate deals, brand distribution deals, better than expected operating performance (imagine

margins rising as sales fall), or just continued buybacks with cash taken from operations or runoff activities.

When you strip out the shares owned by Eddie Lampert/ESL, boardmemember/ESL investor Tommy

Tisch, and long-term shareholder Bruce Berkowitz at Fairholme, only 20% of the total shares outstanding

remain publicly traded, and 50% of that ever-shrinking float is reported short. To repeat, only 20% of total

shares outstanding remain publicly traded, 50% of that float is reported short, and the company is buying

back 25-50% of its float annually. If we’re right about the company’s cash flow, the company would be able

to buy back the rest of its float in 2 years at current prices and the high short interest just accelerates that.

 

More:

For those talking heads who spout that Eddie Lampert doesn’t know anything about retailing, we would encourage them to look at the financial summary on the first page of AutoZone’s annual report. If you’ve ever studied any retailer’s financials, it speaks for itself.

 

Old West Investment Management has ~23% of their portfolio in SHLD.

 

Interestingly, they have also opened a new position in SPDR S&P 500 (PUT) (26.3%)

[willie2013]

Looking at buying the common ($57.54 at today's close) and selling 9/21/13 $60 calls for $5.30 (last price today).  This example puts you in the stock at $52.24 ($57.54 - $5.30) and, if the stock is above $60 on 9/21 the return is 42% annualized  ($7.76/$52.54 X 365/128 days to expiry).  And, perhaps the buying by insiders/funds, improving retailing environment, and the value of the real estate limits the downside (stock falls below $52.24).  Feel free to poke holes in this, correct my math, etc - I welcome criticism....

[muscleman]

Looking at buying the common ($57.54 at today's close) and selling 9/21/13 $60 calls for $5.30 (last price today).  This example puts you in the stock at $52.24 ($57.54 - $5.30) and, if the stock is above $60 on 9/21 the return is 42% annualized  ($7.76/$52.54 X 365/128 days to expiry).  And, perhaps the buying by insiders/funds, improving retailing environment, and the value of the real estate limits the downside (stock falls below $52.24).  Feel free to poke holes in this, correct my math, etc - I welcome criticism....

 

It depends on your projected price on 9/21/13. If the price will be $60 on that day, you are right.

But if the price will be $80 on that day, then buying today and selling a covered call at strike $80 gets you much better return.

[Myth465]

That 30% is percent of the float not percent of total shares outstanding.

 

Aw thanks Prunes.

[berkshiremystery]

SHLD Short Interest in the last 12 months

 

http://www.nasdaq.com/symbol/shld/short-interest

 

 

---------------------------------------------------------------

 

Settlement Date Short Interest Avg Daily Share Volume Days To Cover

4/30/2013 7,812,207 598,541 13.052083

4/15/2013 7,972,027 550,968 14.469129

3/28/2013 8,221,058 514,640 15.974386

3/15/2013 8,661,270 1,140,858 7.591891

2/28/2013 8,821,897 856,174 10.303860

2/15/2013 8,247,443 561,645 14.684441

1/31/2013 8,552,896 1,066,898 8.016601

1/15/2013 8,822,105 1,625,737 5.426527

12/31/2012 9,161,095 1,307,993 7.003933

12/14/2012 9,438,097 1,509,885 6.250871

11/30/2012 9,235,064 1,757,287 5.255296

11/15/2012 7,899,358 710,507 11.117917

10/31/2012 7,488,718 810,911 9.234944

10/15/2012 7,038,236 709,926 9.914042

9/28/2012 7,806,220 896,169 8.710656

9/14/2012 7,579,838 2,361,483 3.209779

8/31/2012 8,934,831 1,112,094 8.034241

8/15/2012 9,055,782 731,276 12.383535

7/31/2012 9,327,597 539,245 17.297512

7/13/2012 9,443,657 566,007 16.684700

6/29/2012 9,660,609 749,130 12.895771

6/15/2012 9,566,876 835,722 11.447438

5/31/2012 9,900,527 1,381,674 7.165603

5/15/2012 9,631,115 1,480,732 6.504293

 

 

 

 

[berkshiremystery]

Here's the filing by Baker Street Capital about their SHLD call options -->

 

http://www.sec.gov/Archives/edgar/data/1310067/000092189513000470/sc13g07950011_02192013.htm

 

( 1) Includes 7,000,000 shares of Common Stock underlying certain options exercisable within 60 days.

 

Beware! This doesn't necessary mean that they are 81% of their assets in SHLD calls. They only have to report to the SEC the equity and option investments, while a big cash position goes unnoticed! If they keep 50% in cash, this might only be some 40.5% position in SHLD calls, but still impressive.

 

 

 

 

 

 

 

their last 13g indicates that includes 7m shares underlying options exercisable within 60days - and that was on Feb 19th. Still odd. When are the next results due? What do they expect to happen in the next ... month?

 

 

What the heck is going to happen to the shorts if Sears reports a surprise to the upside next quarter???

 

My guess is something similar to what happened with OSTK and TSLA stocks.

 

It seems Baker Street Capital also owns some SHLD options:

http://www.sec.gov/Archives/edgar/data/1488207/000092189513001081/form13fhr07950_03312013.txt

 

Is the data correct?

 

http://whalewisdom.com/filer/baker-street-capital-management-llc

 

Baker Street put in 81% of their money into one call option?

I guess it is 7 million shares equivalent, which should be 70,000 call options, right?

 

Very odd. Is there any way to find out which calls (expiry/strike)?

[FCharlie]

Looking at buying the common ($57.54 at today's close) and selling 9/21/13 $60 calls for $5.30 (last price today).  This example puts you in the stock at $52.24 ($57.54 - $5.30) and, if the stock is above $60 on 9/21 the return is 42% annualized  ($7.76/$52.54 X 365/128 days to expiry).  And, perhaps the buying by insiders/funds, improving retailing environment, and the value of the real estate limits the downside (stock falls below $52.24).  Feel free to poke holes in this, correct my math, etc - I welcome criticism....

 

 

Go for it. You can make a small fortune selling SHLD options. I've always been amazed at the premiums that are offered on both sides. I do this also, except I'd suggest selling shorter time periods simply because as someone else pointed out, the stock could be at $80 and you'll wish you'd have not sold the calls.

 

I think with Lampert and Berkowitz buying every dip combined with the 10K saying that they plan to raise $500 million of liquidity through asset sales this year, there is a floor under the stock.

[nsa122]

"Now, let's look at the stores we have closed to see how much profit they contributed in 2006, our peak operating earnings year. While we have closed just over 300 domestic stores since 2006, we have retained most of the stores that contributed significantly to our profitability in that year. We calculate that the amount of EBITDA that the closed stores generated in 2006 was a little more than $100 million of the $3.2 billion in domestic Adjusted EBITDA that the company had in 2006. Through a combination of net inventory and real estate proceeds, we estimate that we have generated roughly $1 billion in value from these stores. While we closed these stores at different times over the past six years, if you combined their performance for the twelve months prior to the start of the process to close each store, they generated an EBITDA loss of over $50 million in aggregate."

 

This caught my attention, in part so refreshing to have a management discuss the business so forthrightly. It'd be enlightening to see a distribution of stores by profitability. He has closed the bottom 300, I wonder what do the top 300 look like.

 

I also wonder what he means exactly by "generated roughly $1 billion in value from these stores." Does this wording mean $1B in cash proceeds from liquidation of real estate and inventory or $1B in averted future losses due to ceasing unprofitable business?

[nsa122]

Here is my attempt to value SHLD's real estate in Texas. I basically took each store and looked it up in the county's appraisal district database.

 

60 stores.

Range $1.4M-18.2M

Mean $4.6M

Median $3.5M

Total $268M

 

If the rest of the country looks like Texas, that would equal $3.6B. How well the tax rolls approximate the potential market value of the stores I put up for debate.

Of note, the most valuable store, at $18M in Valley View Mall in North Dallas, is the subject of a proposed $2B redevelopment.

http://www.wfaa.com/news/local/Developing-plans-at-Valley-View-Mall-location-to-be-revealed-today-148657265.html

A few stores like this might change the value of the real estate total, but hard to predict by how much.

[plato1976]

May I shamelessly ask what you guys' estimation of SHLD 's intrinsic value ?

I almost want to jump in , just for the potential of a short squeeze - it's closer and closer to the point of show hand when those big shareholders keep buying

 

Looking at buying the common ($57.54 at today's close) and selling 9/21/13 $60 calls for $5.30 (last price today).  This example puts you in the stock at $52.24 ($57.54 - $5.30) and, if the stock is above $60 on 9/21 the return is 42% annualized  ($7.76/$52.54 X 365/128 days to expiry).  And, perhaps the buying by insiders/funds, improving retailing environment, and the value of the real estate limits the downside (stock falls below $52.24).  Feel free to poke holes in this, correct my math, etc - I welcome criticism....

 

 

Go for it. You can make a small fortune selling SHLD options. I've always been amazed at the premiums that are offered on both sides. I do this also, except I'd suggest selling shorter time periods simply because as someone else pointed out, the stock could be at $80 and you'll wish you'd have not sold the calls.

 

I think with Lampert and Berkowitz buying every dip combined with the 10K saying that they plan to raise $500 million of liquidity through asset sales this year, there is a floor under the stock.

[Guest wellmont]

Looking at buying the common ($57.54 at today's close) and selling 9/21/13 $60 calls for $5.30 (last price today).  This example puts you in the stock at $52.24 ($57.54 - $5.30) and, if the stock is above $60 on 9/21 the return is 42% annualized  ($7.76/$52.54 X 365/128 days to expiry).  And, perhaps the buying by insiders/funds, improving retailing environment, and the value of the real estate limits the downside (stock falls below $52.24).  Feel free to poke holes in this, correct my math, etc - I welcome criticism....

 

there are a lot of short term trades in today's market. it seems to me that this one will capture a bit of upside in a short period if the stock runs. But keep in mind that eddie was at one point buying stock back over $100 a share. and he's not in it to make a ST CAP gain. Neither is BB. So yeah if you're right you have a nice ST gain that you pay tax on, and then have to find a place to put that money.  I don't think any of the great value investors are as short term focused as this trade indicates. it's a trade for someone who doesn't have a lot of conviction. this stock could be over $65 in 2 or 3 sessions.  Think big.

[plato1976]

don't see an obvious catalyst except that big shareholders are buying buying and buying

the float shares are shrinking

 

Looking at buying the common ($57.54 at today's close) and selling 9/21/13 $60 calls for $5.30 (last price today).  This example puts you in the stock at $52.24 ($57.54 - $5.30) and, if the stock is above $60 on 9/21 the return is 42% annualized  ($7.76/$52.54 X 365/128 days to expiry).  And, perhaps the buying by insiders/funds, improving retailing environment, and the value of the real estate limits the downside (stock falls below $52.24).  Feel free to poke holes in this, correct my math, etc - I welcome criticism....

 

there are a lot of short term trades in today's market. it seems to me that this one will capture a bit of upside in a short period if the stock runs. But keep in mind that eddie was at one point buying stock back over $100 a share. and he's not in it to make a ST CAP gain. Neither is BB. So yeah if you're right you have a nice ST gain that you pay tax on, and then have to find a place to put that money.  I don't think any of the great value investors are as short term focused as this trade indicates. it's a trade for someone who doesn't have a lot of conviction. this stock could be over $65 in 2 or 3 sessions.  Think big.

[merkhet]

re Baker Street -- I think it's interesting to note the attached screen shot... the 60s and 70s see to be the only ones with enough open interest to accommodate 70,000 contracts...

 

Perhaps they bought the 60s and sold the 70s so that they could reduce their actual outlay?

 

[merkhet]

Notably, Force Capital (where Baker Street's CEO used to work) might have a similar play...

 

http://whalewisdom.com/filer/force-capital-management-llc

[maxthetrade]

Wow, they have a third of their reported portfolio in S&P500 put options!

 

[BargainValueHunter]

Just a little reminder:

 

http://www.gurufocus.com/news/123169/answers-from-bruce-berkowitz-of-fairholme-fund-comment-on-banks-insurers-and-st-joe

 

The point was that housing prices did erode the initial value that I had on Sears’ real estate. Its price is starting to bump around the bottom. Eddie Lampert has done a fairly good job of improving the balance sheet. We are moving off-balance-sheet pension fund liabilities and starting to close down unprofitable stores, while at the same time trying a few new ideas.

 

It wasn’t that long ago when everyone thought Apple was about to go down the tubes. Except Sears has a much better balance sheet now than Apple did at that time.

 

I'm not too worried. In fact, I'm quite confident that Sears has the wherewithal to wait and prepare for an upturn in housing, which their business is very heavily tied to. Then we shall see. From watching it for the last few years, Sears has become a real win-win, in that if Eddie Lampert does what most people expect he can do – improve the retailing of Sears – the stock will fly high and recognize that. If he can't, the stock price will continue to be volatile, very depressed at times, less depressed at other times, and eventually he'll have one share and we'll have one share, and there will only be two shares.

 

http://www.valueinvestingtv.tv/wp-content/uploads/2011/02/Berkowitz-on-Sears-189x175.jpg

[luck]

not sure what the cash position is.  but even if it's 50-50, this is a pretty wild trade.  my guess is the fund is probably in alot of cash to offset the risk of such a trade.  haven't looked into it though.  if not in alot of cash, the investors must be quaking in their boots.

 

at the very least, it causes to me to make a run through sears while i'm at the mall, to see if things are changing.  i had pretty much given up on buying SHLD after seeing the sears in the local mall.

 

[merkhet]

Something to note re the Baker Street & Force Capital positions -- they hold options, but the reported position is based on # of shares x price of each share -- so their reported position is not their actual position. Their actual position is # of options x price of each option. A big difference.

[prunes]

Is that a quirk of the 13F disclosure in general?