Covering gainers on a day when the DJIA rose more than 400 points after a 600 point drop the prior day can be a bit challenging because many moves are exaggerated. What is not exaggerated is that Sears Holdings Corporation (NASDAQ: SHLD) hit what appeared to be a two-year low yesterday and today the troubled retail giant lost one of the more bearish analysts covering the stock.
S&P Equity Research had carried a “Sell” rating on the stock but that has now been removed and the rating was upgraded to a less pessimistic “Hold” rating. Usually buyers prefer to see “Buy” and “Outperform” ratings in upgrades. In this case, simply losing a “Sell” recommendation was good enough.
When you have a stock that trades an average of under 500,000 shares a day and a most recent short interest of more than 10.8 million shares, sometimes just losing a “Sell” rating might be just as good as hearing “Strong Buy” on a better quality stock.
After shares broke under $60.00, it looks as though S&P decided that the valuation had become fair enough to remove such a pessimistic stance. Added drivers to the upgrade were layaway plans as well as possible new brand launches.
What has to be considered in the backdrop of this upgrade is not just that the “Hold” rating is still a cautious rating. S&P expects that a cautious consumer spending environment will remain in place during a competitive retail environment where Sears and Kmart stores might be seeing lower store investments. A continued weak housing market is another expected drag.
The research is different from the traditional credit ratings, but S&P lowered the corporate credit ratings back in May to B+ from BB- and it had a negative outlook.
Sears saw its stock rise by 10.5% to $64.70 today against a 52-week trading range of $58.45 to $94.79.
JON C. OGG
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