Heading Into Sears Earnings, Stay Away from SHLD Stock

Sears Holdings (SHLD) is hotter than a pistol, with SHLD stock up 56% year-to-date. Edward Lambert, Sears CEO and the largest shareholder of Sears stock, continues his chess moves to extract value for SHLD shareholders.

In fact, while its retail business continues to deteriorate, SHLD stock keeps drifting higher, passing a $60 mark shares of Sears stock have only sparingly seen in the past two years.

But third-quarter Sears earnings are on tap for Thursday, with analysts expecting the company to lose $3.13 per share of SHLD stock in the quarter.

When Sears earnings for the second quarter came out in late August, SHLD stock proceeded to move from $39 to $60 over a two-week period.

Will Sears stock do the same after Q3 Sears earnings? I doubt it.

SHLD Running Out of Tricks

To be blunt, Sears Holdings is running out of rabbits it can pull out of its hat. Sears earnings obviously haven’t been sending SHLD stock higher, but other gimmicks have been.

Spinning off Land's End and its automotive centers, for example, will bring SHLD stock shareholders some much-needed cash … but that's about it.

SHLD paid $1.9 billion for Land's End in 2002. If it had remained a separate entity continuing on its growth path, I suspect it would fetch at least double that amount. In the hands of SHLD, though, it's lost its brand attractiveness and likely will be spun-off for less than Sears paid over a decade ago.

As for the auto centers, the trade publication Tire Business estimates they generate $1.5 billion in revenue annually. Sears will be lucky to extract $2.3 billion in value for Sears stock shareholders on both divestitures.

And then there’s the SHLD retail operations. And it’s obvious its best days are behind it — as seen by the ugly Sears earnings on tap for Q3. SHLD has achieved 26 consecutive quarters of negative same-store sales. Sure, other stores like Gap (GPS) have gone through their own periods of negative comps. But GPS just went through four straight quarters in fiscal 2011 before hitting its stride a year later.

As for overall sales, they’re expected to fall over 5% in the coming Sears earnings report, and a total of 8% for the full year.

While it’s possible to turn around sliding SHLD sales, that’s only if you’ve got seasoned merchants running the show. Unfortunately, no one's ever accused Lampert of being a merchant. And so Sears Holdings has its work cut out for it.

Sell SHLD Stock Now

InvestorPlace editor Jeff Reeves suggested in September that Sears Holdings would face serious solvency problems in 2014 — obviously a screaming warning sign for fans of Sears stock.

At the same time you can find lengthy diatribes by firms such as Baker Street Capital that outline the unrealized value of SHLD stock. Like most value investors, Baker Street's argument is based on the underlying real estate of Sears (because it’s obviously not based on Sears earnings), which it values between $7 and $10 billion.

Adding in its other businesses while subtracting debt and pension liabilities, Baker Street says SHLD stocks is worth $92 to $169 per share — well above the current price around $65 for Sears stock.

Still, I wouldn’t expect SHLD stock to move higher after Sears earnings like it did last quarter. Why? There aren’t the same catalysts (Land's End, Auto, Sears Canada and more) available to fuel another leg up for Sears stock.

Sure, if you agree with Baker Street Capital's assessment of SHLD (I don’t), then you shouldn’t have a problem owning its stock at these prices.

But operationally — as seen by Sears earnings — SHLD is nearly a bigger embarrassment than JCPenney (JCP) … and that's saying something.

So heading into Sears earnings, I would steer clear of SHLD stock.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.