SHLDQ - Sears Holdings Corp

[texual]

Restoration Hardware is a pretty awesome stock and something ESL was interested in acquiring for SHLD years ago. Sweet looking business that slipped away. My thoughts are, more deals like that could have solidified the holdings company by having smaller, faster growing businesses.

[hyten1]

http://finance.yahoo.com/news/private-equity-firm-sycamore-considers-033451463.html

[Luke 532]

Will he shut down his fund and distribute everything except what he owns personally, and advise his clients to do whatever they like with SHLD?

 

Margin of safety provided by real estate with long-term benefit that if he can get SHLD to work he'll possibly (more like probably) make it his permanent capital vehicle.  That remains the bottom-line of my thesis.

 

I think he's heading in that direction.

[Luke 532]

http://finance.yahoo.com/news/private-equity-firm-sycamore-considers-033451463.html

 

Just for a little perspective...if Canada gets $2B and SHLD gets $1B for its stake, that's >25% of SHLD's market cap. 

 

Ideas from merkhet on what they hinted they might do with the cash infusion (if a sale actually takes place)...

 

 

(4) Potential Sales Proceeds - I'm going to sound like the boy who cried wolf here, but I would be highly surprised if they don't buy back some shares and/or debt in the next six months using sales proceeds from Sears Canada and/or Sears Auto. (Full Disclosure: I've been waiting for ESL to buy back shares since January of this year and it hasn't happened yet.) However, the following piece of the conference call seems to signal that they're looking into this as well:

 

Also note that, should we be successful in monetizing our 51% stake in Sears Canada, this would result in cash proceeds of approximately $730 million at current market values. As indicated on the slide, this affords us the option, should we decide to do so, to apply those proceeds to our domestic revolver. I would note that under the terms of our domestic revolver agreement, we have flexibility in how we use those proceeds. We are not required to apply these proceeds to the outstanding revolver balance. If we have received these proceeds and decided to apply them to the domestic revolver outstanding balance, then availability under our domestic revolver would have been $1.5 billion had the transaction taken place as of the end of our fiscal first quarter.

 

 

...

 

I would also note that we would continue to de-lever our balance sheet and increase our availability to the extent we are successful in monetizing our 51% stake in Sears Canada, which currently has a market value of about $730 million. As indicated on the slide, this affords us the option, should we decide to do so, to apply those proceeds to our domestic revolver. Had such a transaction taken place as of the end of our first fiscal quarter, and had we applied those proceeds to the outstanding domestic revolver balance, we would have had no net short-term debt. Actually, we would have been net cash positive.

 

I would also note that we currently have $500 million of authorization remaining for share repurchases, as well as $275 million of authorization remaining for repurchases of our debt. As we have commented, we believe that we have ample liquidity to run the business and also have the benefit of access to a rich portfolio of assets.

 

The fact that they referred to their flexibility with how they can use the proceeds and the mention of their share and debt buyback authorizations makes me think that they're very likely to buyback shares using the proceeds from Sears Canada and/or Sears Auto.

[focusinvestor]

Will he shut down his fund and distribute everything except what he owns personally, and advise his clients to do whatever they like with SHLD?

 

Margin of safety provided by real estate with long-term benefit that if he can get SHLD to work he'll possibly (more like probably) make it his permanent capital vehicle.  That remains the bottom-line of my thesis.

 

I think he's heading in that direction.

 

I agree. The layers of options that Eddie is working with are numerous. In the meantime, the success and stickiness of SYW is being hidden by the deterioration of non-SYW business.

 

It can't be more clear at this stage. Eddie is completing a slow liquidation of ESL while concentrating more and more on SHLD. He runs it like a holding company with business unit CEO's. He is hoarding cash (instead of buybacks) in order to complete the transformation (part Costco, part Amazon, with clear barriers to entry and sticky "members").

 

He is finally starting to communicate more... there is no doubt that he shares every shareholder's frustration of 7+ "lean" years (I am being generous) and is getting impatient with the fact that SYW performance hasn't finally overcome all of the other retail headwinds they are facing.

 

He seems to be signaling sustainable positive comps this year. He may end up being vindicated sooner than we all think.

[woodennickels]

Barron's: And then for Sears?

 

Murray Stahl: So what is Sears? Sears is really a basket of assets that are not being utilized. It is basically a holding company for real estate and brands like Kenmore, DieHard and Craftsman. It doesn't take a lot of imagination to see that in a different orientation, it could be worth a lot of money. A lot of its real estate is in D-level malls, which happen to have a high vacancy rate. There are also some A- and B-level properties where the vacancy rate is gradually diminishing since no one is building malls. With some normal population growth in the U.S. -- I don't even say economic growth, it is population growth -- the vacancy rate will disappear and malls will have value. I have no doubt that Sears will realize its value. At the moment, most observers think CEO Eddie Lampert is not a very astute individual, but I happen to think he is. I have great respect for him. We'll find out in due course how astute he really is, but I believe that he knows what he is doing.

[Alekbaylee]

Hyten1: Try this http://www.fairholmefunds.com/show_ie_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/FAIRX%202014.PDF

 

Doesn't say more though than what's in the headlines.

 

Anyone remembers the average price Berkowitz bought at and when?

The thread is too long to fetch.

Thxs.

 

 

[merkhet]

From memory, I think it's around $70 a share -- but I could be wrong.

[Luke 532]

Barron's: And then for Sears?

 

Murray Stahl: So what is Sears? Sears is really a basket of assets that are not being utilized. It is basically a holding company for real estate and brands like Kenmore, DieHard and Craftsman. It doesn't take a lot of imagination to see that in a different orientation, it could be worth a lot of money. A lot of its real estate is in D-level malls, which happen to have a high vacancy rate. There are also some A- and B-level properties where the vacancy rate is gradually diminishing since no one is building malls. With some normal population growth in the U.S. -- I don't even say economic growth, it is population growth -- the vacancy rate will disappear and malls will have value. I have no doubt that Sears will realize its value. At the moment, most observers think CEO Eddie Lampert is not a very astute individual, but I happen to think he is. I have great respect for him. We'll find out in due course how astute he really is, but I believe that he knows what he is doing.

 

Yeah, Stahl has been cranking up his ownership in SHLD the past 2 quarters... was 3.54M shares, now 5.16M shares (increase of 46%).

 

Add 579,427 to Murray Stahl/Horizon (up from 3,541,185 Q3 2013 to 4,120,612 Q4 2013):

http://www.sec.gov/Archives/edgar/data/1519418/000151941814000012/xslForm13F_X01/form13fhr-infoTable.xml

 

Murray Stahl/Horizon adds 1,037,873 shares.  Up from 4,120,612 in Q4 2013 to 5,158,485 in Q1 2014: http://www.sec.gov/Archives/edgar/data/1519418/000151941814000014/xslForm13F_X01/form13fhr-infoTable.xml

 

[Luke 532]

Murray Stahl: "I have no doubt that Sears will realize its value."

 

I hate 100%/no doubt/guaranteed/etc. statements like Stahl's above, but it does show conviction.  Below is an excerpt from his letter 2.5 years ago where he gives a rough valuation to SHLD.  Given Stahl has increased his share count 46% in the past two quarters it's probably safe to say he's more convinced today of SHLD's value being realized than he was 2 years ago.  Berkowitz probably is, too, given he has increased his holdings by 18% in the last 2 quarters (20,758,000 Nov '13 filing to 24,502,000 May '14 filing).  Stahl's excerpt...

 

http://www.horizonkinetics.com/docs/2011Q4_commentary.pdf

Murray Stahl on SHLD Q4 2011:

Yet, if viewed as a real estate company, virtually every management decision has been logical. This was the initial investment thesis when the position was established: that the ultimate value of the real estate was worth more than the market capitalization of the company, and that the realization of that value

would be a long-term prospect, since it appeared that the controlling shareholder, Eddie Lampert, was intent on first maximizing the cash flow available from the retail business.

 

Nevertheless, a variety of sources tend to confirm that a rough average price for mall-type real estate, to build or buy, is roughly $225 per square foot, although individual values can be less than one-half or more than twice that figure. Of the roughly 4,000 Sears stores, some 800 are owned, and these encompass roughly 93 million square feet. If, merely for momentary consideration, these are worth $200 per square foot, then this real estate is worth $18 billion, or $168 per share; at only $100 per square foot, the per-share value would be $85. If one subtracts both the company’s net debt and capital lease obligations (net of cash) and pension and post-retirement liability obligations of $33 per share, then the net value of the real estate is $52 per share. Moreover, the balance sheet has been arranged such that it will not be until 2016 that the first major debt maturities and credit line expirations take place. Thus, there will be a good four years for retailing and housing (Sears sells the white goods—refrigerators, washing machines and dishwashers)—to

recover, for capitalization rates to improve, and for optionality to be realized within this enormous real estate portfolio. Aside from the owned stores there is reason to believe that there are many long-term, below-market leases among the 3,000-plus leased stores. These, too, have value as real estate.

 

As does the company’s 2 million square feet of owned office space at its headquarters in the Hoffman Estates suburb of Chicago. There are other assets, too. Aside from whatever values are attached to the brands that it owns (for example, Craftsman tools, Kenmore, Land’s End and DieHard car batteries), Sears is also a major internet presence: it was listed as the 7th largest internet retailer in 2011 by Internet Retailer, directly behind Walmart.com.

 

As an aside, this quote from Stahl "Yet, if viewed as a real estate company, virtually every management decision has been logical" is similar to this quote from Berkowitz* "If I’m in the same shoes I would have made the same decisions…”

*starts roughly at the 8 minute, 50 second mark of this video from September 2013: http://www.marketfolly.com/2013/09/bruce-berkowitz-talks-fanniefreddie.html

[Luke 532]

Given Stahl has increased his share count 46% in the past two quarters it's probably safe to say he's more convinced today of SHLD's value being realized than he was 2 years ago.  Berkowitz probably is, too, given he has increased his holdings by 18% in the last 2 quarters (20,758,000 Nov '13 filing to 24,502,000 May '14 filing).

 

The market is falling asleep on SHLD, and guys like Berkowitz and Stahl are taking advantage.

[merkhet]

I find the distinction between real estate and retail to be greatly misleading in this particular case.

 

In real estate, you make money off the following formula:

(Sq. Ft.) x A[(Rent per Sq. Ft.) x (Cap Rate)] = valuation

 

In retail, you make money off the following formula:

(Sq. Ft.) x B[(Sales per Sq. Ft.) x (Net Margin) x (Multiple)] = valuation

 

*A[] and B[] are not parts of the formula but merely markers.

 

If A[] is higher than B[] for any given store, then they will try to either (1) sell it to a real estate company that thinks it can make a higher return, say A'[], on the real estate or (2) lease it to a retail company that can make a higher return, say B'[].

 

In the case that A[] is higher than B[], and they proceed with one of the two options above, they are hoping that by implementing SYW, they can increase the B[] at a nearby store and thus keep from losing too many sales because of the shutdown of the store.

 

So the focus on real estate is only part of the puzzle -- the question isn't necessarily slow-motion liquidation as Ackman says -- it's actually capital allocation of shifting the square footage to the best and highest use.

[ni-co]

I find the distinction between real estate and retail to be greatly misleading in this particular case.

 

In real estate, you make money off the following formula:

(Sq. Ft.) x A[(Rent per Sq. Ft.) x (Cap Rate)] = valuation

 

In retail, you make money off the following formula:

(Sq. Ft.) x B[(Sales per Sq. Ft.) x (Net Margin) x (Multiple)] = valuation

 

*A[] and B[] are not parts of the formula but merely markers.

 

If A[] is higher than B[] for any given store, then they will try to either (1) sell it to a real estate company that thinks it can make a higher return, say A'[], on the real estate or (2) lease it to a retail company that can make a higher return, say B'[].

 

In the case that A[] is higher than B[], and they proceed with one of the two options above, they are hoping that by implementing SYW, they can increase the B[] at a nearby store and thus keep from losing too many sales because of the shutdown of the store.

 

So the focus on real estate is only part of the puzzle -- the question isn't necessarily slow-motion liquidation as Ackman says -- it's actually capital allocation of shifting the square footage to the best and highest use.

 

+1

For Lampert, it's all about capital allocation. And rightly so. I love it.

[peridotcapital]

Murray Stahl: "I have no doubt that Sears will realize its value."

 

I hate 100%/no doubt/guaranteed/etc. statements like Stahl's above, but it does show conviction.  Below is an excerpt from his letter 2.5 years ago where he gives a rough valuation to SHLD.  Given Stahl has increased his share count 46% in the past two quarters it's probably safe to say he's more convinced today of SHLD's value being realized than he was 2 years ago.  Berkowitz probably is, too, given he has increased his holdings by 18% in the last 2 quarters (20,758,000 Nov '13 filing to 24,502,000 May '14 filing).  Stahl's excerpt...

 

http://www.horizonkinetics.com/docs/2011Q4_commentary.pdf

Murray Stahl on SHLD Q4 2011:

Yet, if viewed as a real estate company, virtually every management decision has been logical. This was the initial investment thesis when the position was established: that the ultimate value of the real estate was worth more than the market capitalization of the company, and that the realization of that value

would be a long-term prospect, since it appeared that the controlling shareholder, Eddie Lampert, was intent on first maximizing the cash flow available from the retail business.

 

Nevertheless, a variety of sources tend to confirm that a rough average price for mall-type real estate, to build or buy, is roughly $225 per square foot, although individual values can be less than one-half or more than twice that figure. Of the roughly 4,000 Sears stores, some 800 are owned, and these encompass roughly 93 million square feet. If, merely for momentary consideration, these are worth $200 per square foot, then this real estate is worth $18 billion, or $168 per share; at only $100 per square foot, the per-share value would be $85. If one subtracts both the company’s net debt and capital lease obligations (net of cash) and pension and post-retirement liability obligations of $33 per share, then the net value of the real estate is $52 per share. Moreover, the balance sheet has been arranged such that it will not be until 2016 that the first major debt maturities and credit line expirations take place. Thus, there will be a good four years for retailing and housing (Sears sells the white goods—refrigerators, washing machines and dishwashers)—to

recover, for capitalization rates to improve, and for optionality to be realized within this enormous real estate portfolio. Aside from the owned stores there is reason to believe that there are many long-term, below-market leases among the 3,000-plus leased stores. These, too, have value as real estate.

 

As does the company’s 2 million square feet of owned office space at its headquarters in the Hoffman Estates suburb of Chicago. There are other assets, too. Aside from whatever values are attached to the brands that it owns (for example, Craftsman tools, Kenmore, Land’s End and DieHard car batteries), Sears is also a major internet presence: it was listed as the 7th largest internet retailer in 2011 by Internet Retailer, directly behind Walmart.com.

 

As an aside, this quote from Stahl "Yet, if viewed as a real estate company, virtually every management decision has been logical" is similar to this quote from Berkowitz* "If I’m in the same shoes I would have made the same decisions…”

*starts roughly at the 8 minute, 50 second mark of this video from September 2013: http://www.marketfolly.com/2013/09/bruce-berkowitz-talks-fanniefreddie.html

 

I find it so bizarre that all of these bullish valuations, whether from Stahl or Berkowitz or Baker Street, use undiscounted values for the asset base, as if it won't take years for full asset values to be realized in some fashion. I think it was Luke who said that he would consider it a disappointment if SHLD only beat the S&P by a few percentage points over the longer term. Well, let's say Berkowitz is proved right and 10 years from now SHLD trades for $150/share. I think it's fair to say that is an optimistic scenario (albeit not the most optimistic, as I'm sure some think it will trade there in 5 years) given how long it will take to wind down the retail operations and use the real estate more productively. That's a 15% CAGR. Sure, if the market does 10% then you will have outperformed, but I don't think it would be seen by most as an enormously successful investment. I just don't get how these guys are not using discount rates when you have assets that in their current form/use are losing substantial amounts of money.  Yes, it would make their bullish predictions less compelling, but it would likely be far more rational.

[Luke 532]

 

I find it so bizarre that all of these bullish valuations, whether from Stahl or Berkowitz or Baker Street, use undiscounted values for the asset base, as if it won't take years for full asset values to be realized in some fashion. I think it was Luke who said that he would consider it a disappointment if SHLD only beat the S&P by a few percentage points over the longer term. Well, let's say Berkowitz is proved right and 10 years from now SHLD trades for $150/share. I think it's fair to say that is an optimistic scenario (albeit not the most optimistic, as I'm sure some think it will trade there in 5 years) given how long it will take to wind down the retail operations and use the real estate more productively. That's a 15% CAGR. Sure, if the market does 10% then you will have outperformed, but I don't think it would be seen by most as an enormously successful investment. I just don't get how these guys are not using discount rates when you have assets that in their current form/use are losing substantial amounts of money.  Yes, it would make their bullish predictions less compelling, but it would likely be far more rational.

 

Perhaps they think the value of their better assets rising over time will far outweigh the drag from the lesser assets and the time value of waiting for it to play out.

 

Besides, people's heads would explode out of confusion if they said something like "stock XYZ is worth $200 today with no discount rate applied and it's trading at $37, and I think factoring in the time value with an appropriate discount rate will result in the stock price and value meeting at $150 at some point in time."  Especially mutual fund investors with low/no minimum investments.

[ni-co]

I just don't get how these guys are not using discount rates when you have assets that in their current form/use are losing substantial amounts of money.  Yes, it would make their bullish predictions less compelling, but it would likely be far more rational.

 

So these are two serious questions and not meant to say that anything you've stated before is wrong. To invert your argument:

What makes you think that SHLD is going to lose money for the next 10 years?

What has changed at SHLD or retailing in general since 2011 that makes you think that SHLD is now a permanent money loser?

[Luke 532]

I just don't get how these guys are not using discount rates when you have assets that in their current form/use are losing substantial amounts of money.  Yes, it would make their bullish predictions less compelling, but it would likely be far more rational.

 

So these are two serious questions and not meant to say that anything you've stated before is wrong. To invert your argument:

What makes you think that SHLD is going to lose money for the next 10 years?

What has changed at SHLD or retailing in general since 2011 that makes you think that SHLD is now a permanent money loser?

 

And why are we so quick to assume that Lampert moving slowly is crushing equity value?  Perhaps he's preserving value.

[peridotcapital]

I just don't get how these guys are not using discount rates when you have assets that in their current form/use are losing substantial amounts of money.  Yes, it would make their bullish predictions less compelling, but it would likely be far more rational.

 

So these are two serious questions and not meant to say that anything you've stated before is wrong. To invert your argument:

What makes you think that SHLD is going to lose money for the next 10 years?

What has changed at SHLD or retailing in general since 2011 that makes you think that SHLD is now a permanent money loser?

 

Where did I state above that I thought SHLD was going to lose money indefinitely? I'm not sure where you got that from (I'm assuming the stock quadruples in 10 years --- not a real possibility if the company loses money for the next 10 years). I am talking about time value not being factored into these valuations. Doing so makes a $37 stock that could be worth $150 many years from now look like a huge bargain, as long as you fail to consider how long it will take to get there. 

[merkhet]

Chad, if you're going to say that the liquidation is going to take 10 years, then you should probably apply some appreciation to that value over the next ten years before discounting it back to the present time... otherwise, I have no idea what you're trying to show by taking present asset values and applying 10 years of discounting to them.

 

[heth247]

I find it so bizarre that all of these bullish valuations, whether from Stahl or Berkowitz or Baker Street, use undiscounted values for the asset base, as if it won't take years for full asset values to be realized in some fashion. I think it was Luke who said that he would consider it a disappointment if SHLD only beat the S&P by a few percentage points over the longer term. Well, let's say Berkowitz is proved right and 10 years from now SHLD trades for $150/share. I think it's fair to say that is an optimistic scenario (albeit not the most optimistic, as I'm sure some think it will trade there in 5 years) given how long it will take to wind down the retail operations and use the real estate more productively. That's a 15% CAGR. Sure, if the market does 10% then you will have outperformed, but I don't think it would be seen by most as an enormously successful investment. I just don't get how these guys are not using discount rates when you have assets that in their current form/use are losing substantial amounts of money.  Yes, it would make their bullish predictions less compelling, but it would likely be far more rational.

 

I think these are valid questions from Chad, but I look at the "$150 in 10 years" as more of the "worse-case scenario", which is purely based on asset liquidation.

 

Look at their "return-to-profit" plan given out in the latest quarter. They just need to squeeze a couple of percentage points here and there then they can get to $1b~1.5b EBITDA with it. They really do not need to do that much to move the needle, if they managed to turn around the corner (which of course is a big "if" for many doubtful minds).

[peridotcapital]

Chad, if you're going to say that the liquidation is going to take 10 years, then you should probably apply some appreciation to that value over the next ten years before discounting it back to the present time... otherwise, I have no idea what you're trying to show by taking present asset values and applying 10 years of discounting to them.

 

That's fair, but I don't think it materially changes the point. The vast majority of the value is in the real estate, which might appreciate by 2-3% annually. On the flip side, maybe retail-related assets (like the Kenmore brand) are worth less in 10 years. I just don't think throwing out numbers like $150 or $168 is helpful without context.

[ni-co]

I just don't get how these guys are not using discount rates when you have assets that in their current form/use are losing substantial amounts of money.  Yes, it would make their bullish predictions less compelling, but it would likely be far more rational.

 

So these are two serious questions and not meant to say that anything you've stated before is wrong. To invert your argument:

What makes you think that SHLD is going to lose money for the next 10 years?

What has changed at SHLD or retailing in general since 2011 that makes you think that SHLD is now a permanent money loser?

 

Where did I state above that I thought SHLD was going to lose money indefinitely? I'm not sure where you got that from (I'm assuming the stock quadruples in 10 years --- not a real possibility if the company loses money for the next 10 years). I am talking about time value not being factored into these valuations. Doing so makes a $37 stock that could be worth $150 many years from now look like a huge bargain, as long as you fail to consider how long it will take to get there.

 

Ok. Then I'm completely confused. I thought you're discounting for the negative cash flow during your assumed 10 year period. I think everybody knows very well that you don't get paid 150 USD tomorrow. But don't forget: Complete liquidation is for most of the SHLD bulls – I guess – only one scenario and not necessarily the best one. Here is a company generating 36 bn in revenue and you can't just simply ignore that. I'm quite sure that liquidation is not what Lampert or Berkowitz regard as the best option. But if you make 15% per year with this option it is not a bad one.

[peridotcapital]

I just don't get how these guys are not using discount rates when you have assets that in their current form/use are losing substantial amounts of money.  Yes, it would make their bullish predictions less compelling, but it would likely be far more rational.

 

So these are two serious questions and not meant to say that anything you've stated before is wrong. To invert your argument:

What makes you think that SHLD is going to lose money for the next 10 years?

What has changed at SHLD or retailing in general since 2011 that makes you think that SHLD is now a permanent money loser?

 

Where did I state above that I thought SHLD was going to lose money indefinitely? I'm not sure where you got that from (I'm assuming the stock quadruples in 10 years --- not a real possibility if the company loses money for the next 10 years). I am talking about time value not being factored into these valuations. Doing so makes a $37 stock that could be worth $150 many years from now look like a huge bargain, as long as you fail to consider how long it will take to get there.

 

Ok. Then I'm completely confused. I thought you're discounting for the negative cash flow during your assumed 10 year period. I think everybody knows very well that you don't get paid 150 USD tomorrow. But don't forget: Complete liquidation is for most of the SHLD bulls – I guess – only one scenario and not necessarily the best one. Here is a company generating 36 bn in revenue and you can't just simply ignore that. I'm quite sure that liquidation is not what Lampert or Berkowitz regard as the best option. But if you make 15% per year with this option it is not a bad one.

 

The point is just that the $150 figure is meaningless without factoring in time. Even if the stock eventually hits $150, it does not mean it will be a great investment. It all depends on how many years it takes to realize the value. Throwing out a $200-$225/sf value on the owned real estate, as Stahl does, implies a lot of value creation over a very long period of time.

 

As an example, Simon just spun out their 53M sf of shopping center assets into WPG and that entity is selling for $90/sf. It's a very good comp for the ~200 owned Kmart stores. Imagine how long it would take to shut down those stores and rent them all out. As a result, the present value of that real estate is far below $90/sf today. That's my point.

[focusinvestor]

I just don't get how these guys are not using discount rates when you have assets that in their current form/use are losing substantial amounts of money.  Yes, it would make their bullish predictions less compelling, but it would likely be far more rational.

 

So these are two serious questions and not meant to say that anything you've stated before is wrong. To invert your argument:

What makes you think that SHLD is going to lose money for the next 10 years?

What has changed at SHLD or retailing in general since 2011 that makes you think that SHLD is now a permanent money loser?

 

Where did I state above that I thought SHLD was going to lose money indefinitely? I'm not sure where you got that from (I'm assuming the stock quadruples in 10 years --- not a real possibility if the company loses money for the next 10 years). I am talking about time value not being factored into these valuations. Doing so makes a $37 stock that could be worth $150 many years from now look like a huge bargain, as long as you fail to consider how long it will take to get there.

 

Ok. Then I'm completely confused. I thought you're discounting for the negative cash flow during your assumed 10 year period. I think everybody knows very well that you don't get paid 150 USD tomorrow. But don't forget: Complete liquidation is for most of the SHLD bulls – I guess – only one scenario and not necessarily the best one. Here is a company generating 36 bn in revenue and you can't just simply ignore that. I'm quite sure that liquidation is not what Lampert or Berkowitz regard as the best option. But if you make 15% per year with this option it is not a bad one.

 

The point is just that the $150 figure is meaningless without factoring in time. Even if the stock eventually hits $150, it does not mean it will be a great investment. It all depends on how many years it takes to realize the value. Throwing out a $200-$225/sf value on the owned real estate, as Stahl does, implies a lot of value creation over a very long period of time.

 

As an example, Simon just spun out their 53M sf of shopping center assets into WPG and that entity is selling for $90/sf. It's a very good comp for the ~200 owned Kmart stores. Imagine how long it would take to shut down those stores and rent them all out. As a result, the present value of that real estate is far below $90/sf today. That's my point.

 

Chad,

 

With respect, isn't that what value investing is all about? Lining up hidden values, hidden cash generating potential, and trying to line up probabilities of what could go wrong with what can go right?

 

The point is that so many investors are writing off Eddie based on rear view mirror performance (and general fatigue/apathy) and neglecting to see the green shoots of progress with SYW, reversing negative store comps, and some strategic asset sales. Furthermore, Eddie can actually fund his own transformation.

 

Trust me, I am not saying anyone against SHLD is wrong... I am simply saying that some of us have identified a significant potential of an underpricing of SHLD equity based on various potential outcomes.

 

By the time the future of SHLD is obvious to everyone, it will be in the price.

[peridotcapital]

Don't disagree with any of that. But that does not mean that any conceivable method of valuing an asset, such as SHLD's real estate, is automatically defendable. There are such things are flawed valuation methodologies.