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Sears Holdings Corp., Fannie Mae, Freddie Mac, Apartment Investors and Equity Residential

^{Published on 2010-01-08 23:40:07 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Sears Holdings Corp. (Nasdaq: [ SHLD ]), Fannie Mae (NYSE: [ FNM ]), Freddie Mac (NYSE: [ FRE ]), Apartment Investors (NYSE: [ AIV ]) and Equity Residential (NYSE: [ EQR ]).

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Here are highlights from Thursday's Analyst Blog:

Sears Surges on Upbeat Guidance

Sears Holdings Corp. (Nasdaq: [ SHLD ]) offered upbeat financial guidance for the fourth quarter of fiscal 2009 after reporting growth in December same-store sales driven by Kmart. The company stated that fourth-quarter earnings is expected between $385 million and $465 million, or $3.36 to $4.06 per share, excluding extraordinary items. The guidance is well above the Zacks Consensus Estimate of $2.61 per share derived from 7 covering analysts.

Shares of Sears Holdings have surged more than 13% in morning trading to reach $101.04 on the Nasdaq.

Sears also stated that for the full fiscal 2009, earnings before extraordinary items are expected to be in the range of $190 million to $270 million, or between $1.61 and $2.29 per share, well above the Zacks Consensus Estimate of $1.27 per share. Sears recorded adjusted earnings of $215 million, or $1.69 per share in the year-ago period. Moreover, the company expects operating income for fiscal 2009 to be in the range of $665 million to $755 million, while adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is expected between $1.72 billion and $1.83 billion.

The company also reported a 0.4% year-over-year growth in same-store sales for December. The increase was primarily driven by a 5.3% growth in Kmart stores, partially offset by a 4.3% decline in Sears stores. Year to date, overall same-store sales declined 5.2%, as Kmart and Sears stores declined by 0.7% and 8.8%, respectively.

Getting That Vacant Look

Many of the government efforts to help the housing market, such as the Fed buying up fully one quarter of all the mortgage-backed securities backed by Fannie Mae (NYSE: [ FNM ]), Freddie Mac (NYSE: [ FRE ]) and Ginnie Mae, as well as the "first time" homebuyer tax credit, are designed to move people from being renters to being owners. But while there are some ancillary benefits to neighborhoods of most people owning rather than renting, it really does not solve the problem.

What it does is cause there to be a lot of vacant apartments. In addition, a large number of formerly foreclosed-upon houses have been bought up by cash investors who plan on renting out those houses rather than living in them themselves.

The net result is that there is a glut of rental living space on the market. According to real estate research firm Reis, the apartment vacancy rate rose by 0.1 point in the fourth quarter to 8.0%, and is up from 6.7% a year ago. It is also the highest level of vacant apartments in the 30 years that Reis has been tracking the data.

An empty apartment is simply a deadweight loss for a landlord. In an effort to fill apartments up, they have been dropping rents, and especially effective rents (i.e. including things like a month of free rent when you re-sign your lease, replacing the carpet, etc.). According to Reis, rents declined by 0.7% in the fourth quarter and by 2.3% for all of 2009. Their data however, only covers the 79 largest rental markets.

Looking at the Numbers by Location

Jacksonville, FL had the highest apartment vacancy rate at 14.4%. The biggest increase over the course of 2009 was in Tucson, AZ, where the rate jumped by 3.1% to 10.5%. So far, the declining rents have not really been picked up by the government in its CPI calculations. Those numbers have been just effectively flat over the last year, not declining.

This could be due to the BLS numbers covering the entire country, not just the 79 largest markets. However, 79 markets covers most of the areas where there are significant numbers of people living in apartments. So it seems like the BLS numbers are simply behind the curve, or there is something very wrong with the methodology that Reis, or the BLS, is using. However, the comments coming from the large publicly traded REITs that specialize in apartments, such as Apartment Investors (NYSE: [ AIV ]) and Equity Residential (NYSE: [ EQR ]), would tend to support what Reis is saying.

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