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Why Sears Holding Corp. Stock Popped Today

By Jeremy Bowman - Jul 17, 2017 at 1:12PM

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Sears' shares bounced higher after scoring a line of credit from Eddie Lampert's hedge fund.

What happened

Shares of Sears Holding Corp. (SHLDQ) were moving higher today after the struggling retailer received a $200 million cash infusion from CEO Eddie Lampert's hedge fund ESL Investments.

As of 12:08 p.m. EDT, the stock was up 5.5% on the news.

The exterior of a Sears store

Image source: Sears Holdings.

So what

Lampert's fund extended the line of credit to Sears with a 151-day maturity and a 9.75% interest rate. The move is his latest attempt to inject liquidity to Sears and prop up the ailing retailer. Shares rallied in response as the move should extend Sears' life span, but the high interest rate is a sign of how risky the company's future is. Sears itself admitted in a filing earlier this year that the company's ability to remain a "going concern" was in doubt as it continues to lose cash each quarter.

Now what

The credit line from ESL may buy time for Sears, but there's little chance of the company turning its business around. It hasn't reported an operating profit since 2010. Comparable sales also continue to plunge, and it's closing more than 250 stores this year. The recent volatility in the stock seems to be fueled by short-term traders and short-sellers. Over a longer horizon, the company is almost certainly headed for bankruptcy.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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