Buy One,Get One Free At Sears

For years, Sears Roebuck has been trying, with little success, to shake off its image as a stodgy retailer. And its stock has gone almost nowhere. Then earlier this summer, Sears was found to have overbilled customers in its auto-repair shops. Not surprisingly, the stock was zapped. Trading at 41, it sells just above book value in a stock market that on average trades at more than twice book. But some pros think now is the time to jump in.

They say that Sears' financial-service companies, Allstate Insurance and Dean Witter Financial Services Group, are money machines. "When you buy Sears stock at this price, you are buying a great financial-services company and getting a retailer for free," argues analyst Peter Siris, a vice-president at UBS Securities.

Second-quarter earnings for the financial-service group showed sharp double-digit gains, notes Siris. He also thinks that Sears has made enough operational improvements and cost reductions to provide shareholders with something they haven't seen for a long time--a positive earnings surprise. Even if merchandising posts just marginal gains, says Siris, earnings should hit $4.95 a share in 1992 and $6.05 in 1993 vs. only $3.71 for 1991. His estimates are higher than other Street estimates on Sears.

SPIN-OFFS? But to make Wall Street take notice, Sears is going to have to perk up its retailing efforts. On Aug. 10, the company hired Arthur Martinez, vice-chairman of upscale retailer Saks Fifth Avenue, to take charge of the merchandising group. Siris thinks the new executive will work quickly to boost flagging retail fortunes. Among some of the possible changes, he says, would be a sale of the money-losing catalog business or sporting goods and home-improvement units.

Value investor Mark Boyar has his eye on more than earnings. He expects Sears to spin off to shareholders one of its financial-service units, perhaps Allstate. A spin-off, Boyar says, "has proven to be an effective means ofenabling a company's underlying value to be recognized quickly in the marketplace." The company's combined as-sets are worth $75 a share, he thinks.

Oppenheimer analyst Bernard Sosnick says that as a free-standing company, Allstate is worth about $12 billion, or 12 times its estimated 1992 earnings of $1 billion. That comes to about $32 per share of Sears--not bad for a $41 stock.

If Sears' retailing results continue to disappoint Wall Street, Sears Chairman and CEO Edward Brennan and the board may have no choice but to start selling some of those rich financial holdings, says Sosnick. Pressure will mount for management to start cashing in on the company's huge asset value, he believes.

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