Allen Douglas Securities has issued a warning and a sell recommendation on Sears (NYSE:S). The warning and sell recommendation are primarily based on data that only recently became available when Sears’ filed its 10Q on November 12, 2002. Recently released Cash Flow Statement data indicates that Sears generated negative operating cash flow of ($1.1 Billion) for the nine months and ($928 million) for its 3rd quarter ended September 30, 2002. The warning and the sell recommendation are also based on other key reasons:
1. Quantitative analysis provided to Allen Douglas by TeamAdvisory.com suggests that Sears earnings momentum is now in a decelerating mode.
2. Technical analysis that is also provided to Allen Douglas by Team Advisory.com suggests that technical indicators for Sears have been turning increasingly bearish.
3. A complete lack of confidence in Sears’ management based on the following events:
a) Two Chicago newspaper articles in late September and early October of 2002 suggest that Sears’ management was unaware of its credit card receivables problem at that time. The credit card receivables issue was raised in both articles by the Director of Research for StockDiagnostics.com, an independent research firm with a web site () providing analytical information based on operational cash flow for public companies.
b) On October 4th, the day after the second article surfaced the head of Sears’ credit card division abruptly left the company.
c) On October 7, 2002, Sears gave EPS guidance of $.80 to $.82 per share for its 3rd quarter ended 9/30/02.
d) On 10/17/02, Sears announced EPS of $.59, which was a shortfall of $.11 per share and a 26% decline from its guidance it had given just 10 days earlier.
George Hasapes, a Vice President for Allen Douglas Securities said “We think that the market has not yet adequately discounted the price of Sears shares based on the research that we have conducted. Furthermore, it is of great concern that that Sears mounting credit card receivables problems were flagged by StockDiagnostics.com and not by Sears’ internal financial controls.”
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