A Beautiful Buy At Saks?

By Gene G. Marcial

Hammered Down
The Kmart (KMRT )-Sears (S ) deal has reignited interest in retail: One stock that several pros are high on -- but that the Street doesn't care about -- is Saks (SKS ), operator of some 350 luxury and traditional department stores. The stock has been hammered since April, when it nearly hit 18; it's now at 13.39. Deutsche Bank (DB ) tags it a "sell," Morgan Stanley "underweight," and Merrill Lynch and others "neutral." Disappointing sales and earnings have prompted analysts to lower estimates.

But Mark Boyar of Boyar Asset Management, which owns shares, is upbeat: "Saks is an example of undervalued real estate," he says. Saks owns an unusually high portion of its stores -- 40% of gross square footage -- including its flagship Saks Fifth Avenue. He "conservatively" values Saks-owned properties at $3.3 billion, or $23.50 a share net of debt. But even without the real estate, Saks is attractive, he says. It sells 20% below book value and close to its 52-week low of 11.61, down from a high of 44.43 in 1999. Still, Saks "hasn't lived up to its potential," says Boyar. He now sees it as a turnaround. But if Saks stock continues to weaken, it will attract a suitor more interested in real estate than retailing, he says. Todd Slater of Lazard, who also likes Saks, expects it to earn 67 cents a share in fiscal 2005 ending Jan. 30 and 99 cents in 2006, vs. 58 cents in 2004.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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