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WWD Article 1 of 2 Published: Friday, November 18, 2005 Analyst Raises Price Target on Sears Holdings By Vicki M. Young NEW YORK — As Sears Holdings Corp. gets ready to post its third-quarter earnings results on Dec. 6, one analyst set a $169 price target on the stock — a 46 percent upside from recent valuations. Meanwhile, investors are waiting to hear some news about the retailer's apparel strategy as well as the fate of its Lands' End business. Shares of Sears closed at $119.50, up 2.4 percent in trading on Thursday. Investment banker Peter J. Solomon of the company that bears his name said at a recent conference on mergers and acquisitions, that he thinks chairman "[Edward] Lampert will figure out how to deal with Lands' End." Sears bought the catalogue firm in 2002 for $1.9 billion. Sources said the asking price in March for Lands' End was $1.2 billion. The company later denied the report, and Lampert's first proclamation as chairman of the new Sears Holdings Corp. following the March 24 merger of Sears and Kmart was that Lands' End wasn't for sale. However, sources in the banking world said management pulled back after not liking the low valuations it was getting. Sears is said to have even approached former Lands' End chief executive officer Michael Smith to gauge his interest in returning to the business. Solomon, whose firm represented the catalogue company when it was shopped in May 2002, said in a recent interview that his pitch to then Sears chairman Alan Lacy was, "When you go into a Sears, you look to the left and see a great brand name, Kenmore. You look to the right and you see Craftsman. At the back is Delco. In the middle of the store, what you see are labels. This is a chance to buy a great brand in the ready-to-wear business." Following the retailer's second-quarter earnings report on Sept. 8, Bill Dreher of Deutsche Bank issued a research note predicting that Lampert, who was chairman of Kmart Holding Corp. and who engineered the merger with Sears, Roebuck & Co., will fulfill his vision for the combined company. According to Dreher, Lampert is taking his time to look at the "moving parts" before planning his next move. "Lampert will figure out how to deal with Lands' End." Peter J. Solomon, As for valuation of the company, Dreher wrote that "significant value realizing catalysts provides upside potential in the shares of Sears Holding." One of those is the possible sale of Lands' End, which Dreher wrote could "generate aftertax cash proceeds of about $1.54 billion." Meanwhile, in a research note dated Nov. 15, Christine Augustine, analyst at Bear Stearns, outlined recent management changes at the retailer as well as a price check on Kmart's toy prices, which she found to be higher than Target and Wal-Mart. Despite the higher toy prices and management turnover, Augustine described the investment risk-reward on the stock to be "compelling." Her worst-case scenario sees a 13 percent downside risk while her $169 price target represents a 46 percent upside gain. The scenario is based on the stock's price at the time of the report. Augustine reiterated an "outperform" rating on the stock. Regarding management changes, Augustine said reporting to Lampert are: Lisa Shultz in the newly created post of executive vice president, Sears Holdings Apparel Design, overseeing Sears and Kmart's apparel design team; Maureen McGuire, executive vice president and chief marketing officer; Corwin Yulinsky, executive vice president, customer strategy and insight, and David McCreight, president of Lands' End. Nine people report to Aylwin Lewis, ceo and president of Sears Holdings. They include back office and logistics departments, as well as store operations such as the general managers for Kmart Stores, Sears Essentials and Sears Grand, and the senior vice president of retail operations at Sears Roebuck. WWD Article 2 of 2 In Augustine's price check for toys, she found Kmart's pricing strategy had not changed since its merger with Sears. Of the items compared, Wal-Mart was the low-price leader, with Target matching closely in price, and Kmart higher than its competitors.