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On Mar 29, Zacks Investment Research upgraded Sears Holdings Corporation (SHLD - Analyst Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Sears has been witnessing rising earnings estimates on the back of improved fourth-quarter fiscal 2012 bottom-line results. Moreover, we believe that the company’s strategic move toward improving the health of the balance sheet through a string of measures helped induce an upward movement in the estimates.

After reporting loss for three consecutive quarters, Sears reported positive earnings of $1.12 per share, which was over two times higher than the year-ago comparable quarters’ earnings of 54 cents. The favorable bottom-line comparisons from last year came on the back of Sears’ ongoing cost reduction initiatives, which lowered selling and administrative expenses during the quarter.

Of late, Sears had undertaken various initiatives to enhance its growth prospects by reducing investments in those sections that no longer contribute significantly to its growth. These measures focus on optimizing the company’s financial performance.

As a major step in this direction, Sears Holdings completed the partial spin-off of 45% of Sears Canada’s common shares to the company’s shareholders on Nov 13, 2012. The company also successfully completed the separation of Sears Hometown and Outlet Stores Inc. on Oct 11, 2012, raising $446.5 million in gross proceeds.

Apart from this, the company has been focusing on cost containment, inventory management, and merchandise initiatives to improve margins through leveraging buying and occupancy expenses. We believe that Sears’ turnaround strategies are paying off, which is evident from its improved operating results for the fourth quarter of fiscal 2012.

Currently, the Zacks Consensus Estimate for fiscal 2013 stands at negative $3.00 per share, portraying an improvement of 16 cents in the last 30 days from a negative $3.16.

Other Stocks to Consider

Apart from Sears, other stocks in the departmental store industry that are currently performing well include Costco Wholesale Corp. (COST - Analyst Report), Conn’s Inc. (CONN - Snapshot Report) and The Kroger Co. (KR - Analyst Report). All these companies carry a Zacks Rank #2 (Buy).

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