Intrinsic value of Sears Holdings - SHLD

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$6.95

  Intrinsic Value

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  Value-price divergence*

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of SHLD stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -11.96
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  22,138
  25,649
  26,239
  26,913
  27,670
  28,509
  29,430
  30,432
  31,517
  32,686
  33,940
  35,282
  36,714
  38,239
  39,859
  41,578
  43,400
  45,329
  47,369
  49,524
  51,799
  54,200
  56,733
  59,402
  62,214
  65,176
  68,294
  71,576
  75,030
  78,664
  82,486
Variable operating expenses, $m
 
  26,880
  27,497
  28,203
  28,996
  29,874
  30,838
  31,887
  33,023
  34,246
  35,560
  36,938
  38,437
  40,033
  41,729
  43,530
  45,437
  47,456
  49,592
  51,848
  54,230
  56,744
  59,395
  62,189
  65,133
  68,234
  71,499
  74,935
  78,551
  82,356
  86,357
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  24,116
  26,880
  27,497
  28,203
  28,996
  29,874
  30,838
  31,887
  33,023
  34,246
  35,560
  36,938
  38,437
  40,033
  41,729
  43,530
  45,437
  47,456
  49,592
  51,848
  54,230
  56,744
  59,395
  62,189
  65,133
  68,234
  71,499
  74,935
  78,551
  82,356
  86,357
Operating income, $m
  -1,978
  -1,231
  -1,258
  -1,290
  -1,325
  -1,365
  -1,408
  -1,455
  -1,506
  -1,561
  -1,620
  -1,656
  -1,723
  -1,795
  -1,871
  -1,951
  -2,037
  -2,127
  -2,223
  -2,324
  -2,431
  -2,544
  -2,662
  -2,788
  -2,920
  -3,059
  -3,205
  -3,359
  -3,521
  -3,692
  -3,871
EBITDA, $m
  -1,603
  -795
  -813
  -834
  -857
  -883
  -912
  -943
  -977
  -1,013
  -1,052
  -1,093
  -1,138
  -1,185
  -1,235
  -1,288
  -1,345
  -1,405
  -1,468
  -1,535
  -1,605
  -1,680
  -1,758
  -1,841
  -1,928
  -2,020
  -2,116
  -2,218
  -2,325
  -2,438
  -2,556
Interest expense (income), $m
  275
  205
  -10
  7
  27
  50
  75
  102
  132
  165
  199
  237
  277
  319
  365
  413
  464
  519
  576
  637
  701
  769
  840
  916
  995
  1,079
  1,167
  1,260
  1,358
  1,461
  1,569
Earnings before tax, $m
  -2,395
  -1,436
  -1,248
  -1,297
  -1,353
  -1,415
  -1,483
  -1,557
  -1,638
  -1,725
  -1,819
  -1,893
  -2,000
  -2,114
  -2,235
  -2,364
  -2,501
  -2,646
  -2,799
  -2,961
  -3,132
  -3,312
  -3,503
  -3,703
  -3,915
  -4,138
  -4,372
  -4,619
  -4,879
  -5,152
  -5,440
Tax expense, $m
  -174
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -2,221
  -1,436
  -1,248
  -1,297
  -1,353
  -1,415
  -1,483
  -1,557
  -1,638
  -1,725
  -1,819
  -1,893
  -2,000
  -2,114
  -2,235
  -2,364
  -2,501
  -2,646
  -2,799
  -2,961
  -3,132
  -3,312
  -3,503
  -3,703
  -3,915
  -4,138
  -4,372
  -4,619
  -4,879
  -5,152
  -5,440

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  286
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  9,362
  11,319
  11,579
  11,877
  12,211
  12,581
  12,987
  13,430
  13,909
  14,424
  14,978
  15,570
  16,202
  16,875
  17,590
  18,349
  19,153
  20,004
  20,904
  21,855
  22,859
  23,919
  25,036
  26,214
  27,455
  28,762
  30,139
  31,587
  33,111
  34,715
  36,402
Adjusted assets (=assets-cash), $m
  9,076
  11,319
  11,579
  11,877
  12,211
  12,581
  12,987
  13,430
  13,909
  14,424
  14,978
  15,570
  16,202
  16,875
  17,590
  18,349
  19,153
  20,004
  20,904
  21,855
  22,859
  23,919
  25,036
  26,214
  27,455
  28,762
  30,139
  31,587
  33,111
  34,715
  36,402
Revenue / Adjusted assets
  2.439
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
  2.266
Average production assets, $m
  4,151
  5,643
  5,773
  5,921
  6,087
  6,272
  6,475
  6,695
  6,934
  7,191
  7,467
  7,762
  8,077
  8,412
  8,769
  9,147
  9,548
  9,972
  10,421
  10,895
  11,396
  11,924
  12,481
  13,068
  13,687
  14,339
  15,025
  15,747
  16,507
  17,306
  18,147
Working capital, $m
  315
  1,257
  1,286
  1,319
  1,356
  1,397
  1,442
  1,491
  1,544
  1,602
  1,663
  1,729
  1,799
  1,874
  1,953
  2,037
  2,127
  2,221
  2,321
  2,427
  2,538
  2,656
  2,780
  2,911
  3,048
  3,194
  3,346
  3,507
  3,676
  3,855
  4,042
Total debt, $m
  4,163
  -137
  97
  365
  666
  999
  1,365
  1,763
  2,194
  2,658
  3,156
  3,689
  4,258
  4,863
  5,507
  6,190
  6,914
  7,680
  8,490
  9,346
  10,249
  11,203
  12,209
  13,269
  14,386
  15,562
  16,801
  18,104
  19,476
  20,919
  22,437
Total liabilities, $m
  13,186
  10,187
  10,421
  10,689
  10,990
  11,323
  11,689
  12,087
  12,518
  12,982
  13,480
  14,013
  14,582
  15,187
  15,831
  16,514
  17,238
  18,004
  18,814
  19,670
  20,573
  21,527
  22,533
  23,593
  24,710
  25,886
  27,125
  28,428
  29,800
  31,243
  32,761
Total equity, $m
  -3,824
  1,132
  1,158
  1,188
  1,221
  1,258
  1,299
  1,343
  1,391
  1,442
  1,498
  1,557
  1,620
  1,687
  1,759
  1,835
  1,915
  2,000
  2,090
  2,186
  2,286
  2,392
  2,504
  2,621
  2,746
  2,876
  3,014
  3,159
  3,311
  3,471
  3,640
Total liabilities and equity, $m
  9,362
  11,319
  11,579
  11,877
  12,211
  12,581
  12,988
  13,430
  13,909
  14,424
  14,978
  15,570
  16,202
  16,874
  17,590
  18,349
  19,153
  20,004
  20,904
  21,856
  22,859
  23,919
  25,037
  26,214
  27,456
  28,762
  30,139
  31,587
  33,111
  34,714
  36,401
Debt-to-equity ratio
  -1.089
  -0.120
  0.080
  0.310
  0.550
  0.790
  1.050
  1.310
  1.580
  1.840
  2.110
  2.370
  2.630
  2.880
  3.130
  3.370
  3.610
  3.840
  4.060
  4.280
  4.480
  4.680
  4.880
  5.060
  5.240
  5.410
  5.570
  5.730
  5.880
  6.030
  6.160
Adjusted equity ratio
  -0.453
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2,221
  -1,436
  -1,248
  -1,297
  -1,353
  -1,415
  -1,483
  -1,557
  -1,638
  -1,725
  -1,819
  -1,893
  -2,000
  -2,114
  -2,235
  -2,364
  -2,501
  -2,646
  -2,799
  -2,961
  -3,132
  -3,312
  -3,503
  -3,703
  -3,915
  -4,138
  -4,372
  -4,619
  -4,879
  -5,152
  -5,440
Depreciation, amort., depletion, $m
  375
  436
  445
  456
  468
  481
  496
  512
  529
  548
  568
  562
  585
  610
  635
  663
  692
  723
  755
  790
  826
  864
  904
  947
  992
  1,039
  1,089
  1,141
  1,196
  1,254
  1,315
Funds from operations, $m
  -548
  -1,000
  -803
  -841
  -885
  -933
  -987
  -1,045
  -1,109
  -1,177
  -1,251
  -1,330
  -1,414
  -1,504
  -1,600
  -1,701
  -1,809
  -1,923
  -2,044
  -2,171
  -2,306
  -2,448
  -2,598
  -2,756
  -2,923
  -3,099
  -3,283
  -3,478
  -3,683
  -3,898
  -4,125
Change in working capital, $m
  833
  25
  29
  33
  37
  41
  45
  49
  53
  57
  61
  66
  70
  75
  79
  84
  89
  95
  100
  106
  111
  118
  124
  131
  138
  145
  153
  161
  169
  178
  187
Cash from operations, $m
  -1,381
  -2,028
  -832
  -874
  -922
  -974
  -1,032
  -1,094
  -1,162
  -1,235
  -1,313
  -1,396
  -1,485
  -1,579
  -1,679
  -1,786
  -1,898
  -2,018
  -2,144
  -2,277
  -2,418
  -2,566
  -2,722
  -2,887
  -3,061
  -3,244
  -3,436
  -3,639
  -3,852
  -4,076
  -4,312
Maintenance CAPEX, $m
  0
  -402
  -409
  -418
  -429
  -441
  -454
  -469
  -485
  -502
  -521
  -541
  -562
  -585
  -610
  -635
  -663
  -692
  -723
  -755
  -790
  -826
  -864
  -904
  -947
  -992
  -1,039
  -1,089
  -1,141
  -1,196
  -1,254
New CAPEX, $m
  -142
  -100
  -130
  -148
  -167
  -185
  -202
  -221
  -239
  -257
  -276
  -295
  -315
  -335
  -356
  -378
  -401
  -424
  -449
  -474
  -501
  -528
  -557
  -587
  -619
  -652
  -686
  -722
  -760
  -799
  -841
Cash from investing activities, $m
  244
  -502
  -539
  -566
  -596
  -626
  -656
  -690
  -724
  -759
  -797
  -836
  -877
  -920
  -966
  -1,013
  -1,064
  -1,116
  -1,172
  -1,229
  -1,291
  -1,354
  -1,421
  -1,491
  -1,566
  -1,644
  -1,725
  -1,811
  -1,901
  -1,995
  -2,095
Free cash flow, $m
  -1,137
  -2,529
  -1,370
  -1,441
  -1,518
  -1,600
  -1,689
  -1,784
  -1,886
  -1,994
  -2,110
  -2,232
  -2,362
  -2,500
  -2,645
  -2,799
  -2,962
  -3,134
  -3,315
  -3,506
  -3,708
  -3,920
  -4,143
  -4,379
  -4,627
  -4,887
  -5,161
  -5,450
  -5,753
  -6,072
  -6,407
Issuance/(repayment) of debt, $m
  1,165
  -2,875
  234
  268
  301
  333
  366
  398
  431
  464
  498
  533
  569
  606
  644
  683
  724
  766
  810
  856
  904
  954
  1,006
  1,060
  1,117
  1,176
  1,239
  1,304
  1,372
  1,443
  1,518
Issuance/(repurchase) of shares, $m
  0
  8,499
  1,162
  1,203
  1,250
  1,304
  1,364
  1,430
  1,503
  1,582
  1,667
  1,758
  1,857
  1,961
  2,073
  2,192
  2,319
  2,453
  2,595
  2,745
  2,904
  3,072
  3,250
  3,437
  3,634
  3,841
  4,060
  4,291
  4,534
  4,789
  5,058
Cash from financing (excl. dividends), $m  
  1,185
  5,624
  1,396
  1,471
  1,551
  1,637
  1,730
  1,828
  1,934
  2,046
  2,165
  2,291
  2,426
  2,567
  2,717
  2,875
  3,043
  3,219
  3,405
  3,601
  3,808
  4,026
  4,256
  4,497
  4,751
  5,017
  5,299
  5,595
  5,906
  6,232
  6,576
Total cash flow (excl. dividends), $m
  48
  -5,404
  -1,136
  -1,173
  -1,217
  -1,267
  -1,323
  -1,386
  -1,455
  -1,530
  -1,611
  -1,699
  -1,793
  -1,894
  -2,002
  -2,117
  -2,238
  -2,368
  -2,505
  -2,650
  -2,804
  -2,966
  -3,138
  -3,319
  -3,510
  -3,711
  -3,923
  -4,146
  -4,381
  -4,629
  -4,889
Retained Cash Flow (-), $m
  1,861
  -3,095
  -26
  -30
  -33
  -37
  -41
  -44
  -48
  -52
  -55
  -59
  -63
  -67
  -72
  -76
  -80
  -85
  -90
  -95
  -100
  -106
  -112
  -118
  -124
  -131
  -138
  -145
  -152
  -160
  -169
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Discount rate, %
 
  16.10
  16.91
  17.75
  18.64
  19.57
  20.55
  21.58
  22.65
  23.79
  24.98
  26.23
  27.54
  28.91
  30.36
  31.88
  33.47
  35.14
  36.90
  38.75
  40.68
  42.72
  44.85
  47.10
  49.45
  51.92
  54.52
  57.25
  60.11
  63.11
  66.27
PV of cash for distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  24.7
  12.1
  5.9
  2.9
  1.4
  0.7
  0.3
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Sears Holdings Corporation operates as a retailer in the United States. It operates in two segments, Kmart and Sears Domestic. The Kmart segment operates retail stores that offer a range of products, including consumer electronics, seasonal merchandise, outdoor living, toys, lawn and garden equipment, food and consumables, and apparel; and in-store pharmacies. It provides merchandise under the Jaclyn Smith, Joe Boxer, and Alphaline labels; Sears brand products, such as Kenmore, Craftsman, and DieHard; and Kenmore-branded products. As of October 31, 2015, this segment operated approximately 952 Kmart stores. The Sears Domestic segment operates stores that provide appliances, consumer electronics/connected solutions, tools, sporting goods, outdoor living, lawn and garden equipment, apparel, footwear, jewelry, and accessories, as well as automotive services and products, such as tires, batteries, and home fashion products. It also offers appliances and services to commercial customers in the single-family residential construction/remodel, property management, multi-family new construction, and government/military sectors; appliance and plumbing fixtures to architects, designers, and new construction or remodeling customers; parts and repair services for appliances, lawn and garden equipment, consumer electronics, floor care products, and heating and cooling systems; and home improvement services, as well as protection agreements and product installation services. This segment provides merchandise under the Kenmore, Craftsman, DieHard, Covington, Canyon River Blues, Metaphor, Outdoor Life, Structure, and Apostrophe brands, as well as under the Roadhandler, Ty Pennington Style, and Alphaline brands. As of October 31, 2015, this segment operated 735 Sears stores. Sears Holdings Corporation was founded in 1899 and is based in Hoffman Estates, Illinois.

FINANCIAL RATIOS  of  Sears Holdings (SHLD)

Valuation Ratios
P/E Ratio -0.3
Price to Sales 0
Price to Book -0.2
Price to Tangible Book
Price to Cash Flow -0.5
Price to Free Cash Flow -0.5
Growth Rates
Sales Growth Rate -12%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -32.7%
Cap. Spend. - 3 Yr. Gr. Rate -15.5%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity -93.4%
Total Debt to Equity -108.9%
Interest Coverage -8
Management Effectiveness
Return On Assets -19%
Ret/ On Assets - 3 Yr. Avg. -11.9%
Return On Total Capital -328.6%
Ret/ On T. Cap. - 3 Yr. Avg. -141.9%
Return On Equity 76.8%
Return On Equity - 3 Yr. Avg. -90.9%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 22.2%
Gross Margin - 3 Yr. Avg. 22.9%
EBITDA Margin -7.9%
EBITDA Margin - 3 Yr. Avg. -4.5%
Operating Margin -8.9%
Oper. Margin - 3 Yr. Avg. -5.9%
Pre-Tax Margin -10.8%
Pre-Tax Margin - 3 Yr. Avg. -7.2%
Net Profit Margin -10%
Net Profit Margin - 3 Yr. Avg. -6.6%
Effective Tax Rate 7.3%
Eff/ Tax Rate - 3 Yr. Avg. 6.1%
Payout Ratio 0%

SHLD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SHLD stock intrinsic value calculation we used $25146 million for the last fiscal year's total revenue generated by Sears Holdings. The default revenue input number comes from 2017 income statement of Sears Holdings. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SHLD stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 16.1%, whose default value for SHLD is calculated based on our internal credit rating of Sears Holdings, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Sears Holdings.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SHLD stock the variable cost ratio is equal to 104.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for SHLD stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 7.5% for Sears Holdings.

Corporate tax rate of 27% is the nominal tax rate for Sears Holdings. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SHLD stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SHLD are equal to 22%.

Life of production assets of 13.8 years is the average useful life of capital assets used in Sears Holdings operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SHLD is equal to 4.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-1963 million for Sears Holdings - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 104.371 million for Sears Holdings is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Sears Holdings at the current share price and the inputted number of shares is $0.7 billion.


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COMPANY NEWS

▶ Sears Still Has Over 1,200 Stores   [08:45AM  24/7 Wall St.]
▶ Sears announces closure of 20 more stores   [Jun-23-17 07:44PM  ABC News Videos]
▶ Sears closes another 20 stores   [05:23PM  Associated Press]
▶ Sears reportedly adds 2 Houston-area stores to closure list   [03:39PM  American City Business Journals]
▶ 3 Stocks I'd Hate to Buy   [03:00PM  Motley Fool]
▶ Sears' latest round of closures includes longtime Hunt Valley store   [01:15PM  American City Business Journals]
▶ [$$] Sears Holdings Shuttering 20 More Stores   [12:53PM  The Wall Street Journal]
▶ Sears will close Southridge Mall store   [11:27AM  American City Business Journals]
▶ Top Companies Owned by Sears (SHLD)   [09:45AM  Investopedia]
▶ You Are Watching Sears Go Out of Business   [08:16AM  TheStreet.com]
▶ Sears to close Burnsville Center store   [Jun-22-17 07:32PM  American City Business Journals]
▶ [$$] Sears Canada Enters Bankruptcy Protection   [12:50PM  The Wall Street Journal]
▶ [$$] Sears Canada Preparing to File for Bankruptcy Protection   [Jun-21-17 06:18PM  The Wall Street Journal]
▶ Here Is The Latest Retailer Possibly Headed Toward Liquidation   [04:14PM  Investor's Business Daily]
▶ Why Sears Holdings Corp. Stock Popped Today   [Jun-20-17 05:44PM  Motley Fool]
▶ Here's the Plan to Save J.C. Penney   [09:22AM  Motley Fool]
▶ Today's Top Supply Chain and Logistics News From WSJ   [06:16AM  The Wall Street Journal]
▶ Cramer: We're in a 'Big Three' World in Retail   [Jun-14-17 07:01PM  TheStreet.com]
▶ [$$] Sears Cuts 400 Jobs in Turnaround Plan   [12:56AM  The Wall Street Journal]
▶ Asian stocks mixed after Wall Street gains   [Jun-13-17 11:35PM  Associated Press]
▶ Gymboree Goes Bankrupt: Sears May Be Next   [03:36PM  Investopedia]
▶ 10 Biggest Unicorn Companies in the World   [02:16PM  TheStreet.com]
▶ US stocks rebound as tech companies move higher   [11:31AM  Associated Press]
▶ Sears is cutting hundreds of HQ corporate jobs   [10:20AM  American City Business Journals]
▶ 2017: The Year of Retail Bankruptcies   [10:19AM  Investopedia]
▶ Tech turnaround lifts stocks as oil falls   [09:18AM  Yahoo Finance]
▶ Sears to eliminate 400 jobs   [08:32AM  MarketWatch]
Stock chart of SHLD Financial statements of SHLD Annual reports of SHLD
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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