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Since money-manager superstar Eddie Lampert merged Sears-Roebuck and Kmart in 2005, Sears Holdings shares rose to $195 this year, then sank to $134. Detractors are calling Sears Lampert's Waterloo: Earnings sank 40% to $176 million in FQ2, from $294M in FQ2'06. In the headwinds of a U.S. slowdown, Sears doesn't look like it'll top last year's earnings of $1.4 billion or $9/share, on $53B in sales. Stiff competition put Sears's margins at 4.74% vs. competitors like J.C.Penney (9.66%), Target (8.76%) and Kohl's (11.7%). But Barron's says bears could be overlooking Sears's value: Instead of investing in advertising and remodeling, Lampert added higher-margin merchandise, used capital to expand Sears's highly profitable home improvement businesses and updated in-store technology and distribution systems. Sears has bought or is buying back $6.5B in shares. If the firm can just align its margins with competitors, shares could go to $190. Barron's says if that doesn't work, assets like Sears's popular appliance brands and its real estate in particular are so grossly undervalued that the breakup could yield a $300 share value. Rivals' real estate portfolio-to-enterprise values are five, even ten-fold more, and Sears owns more square feet than any of them. Barron's notes that funds like Legg Mason and Pershing Square are also bullish, holding big stakes.

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Source: Sears May Be Lampert's Best Bet Yet - Barron's