Why Sears Holding Corp. Stock Climbed Today

The struggling retailer gained for the seventh straight day on what looks like an ongoing short squeeze.

Jeremy Bowman
Jeremy Bowman
Jun 30, 2017 at 4:17PM
Consumer Goods

What happened

Shares of Sears Holding Corp. (NASDAQOTH:SHLDQ) continued to climb on what appeared to be an extended short squeeze. Friday's was the seventh session in a row that the stock has gained, jumping more than 33% in that time span. The stock closed up 3.6% on the day.

The exterior of a Sears department store

Image source: Sears Holdings.

So what 

Sears is one of the most shorted stocks on the market, with two thirds of investors betting that it will fall. The stock's rise over the last several days on low volume is likely a sign that bears -- worried they'll lose money as the stock continues to gain -- have been closing out their bets.

Sears director and major shareholder Bruce Berkowitz has also been making bullish comments about the stock lately. In a profile in The Wall Street Journal Thursday, he defended his investment in Sears as a real estate play, arguing that anchor spaces would become valuable properties as malls adapt to the e-commerce era, and that they're currently being undervalued. Earlier in June, Berkowitz said he values Sears' real estate at between $90 and $100 a share.

Now what

What Berkowitz doesn't seem to understand is that even if Sears' real estate is being undervalued it the market, it still doesn't compensate for the hundreds of millions in losses the retailer is reporting essentially every quarter. The retail business is a wreck, with comparable sales falling by double-digit percentages and a steady stream of store closures. It's only stayed alive this long thanks to the largesse of CEO Eddie Lampert, whose hedge fund, ESL Investments, has injected hundreds of millions of dollars into the retailer. The company also already spun off a portion of its real estate assets into Seritage Growth Properties (NYSE:SRG), with Sears Holding leasing them back.

If the real estate was worth what Berkowitz says it is, the company would be better off shutting down its stores and selling the property. That's not happening. I'd expect the stock to head south again, as the core business' weaknesses are too much to overcome.