Kmart stock downgraded to 'sell'

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Posted 1:52PM on Wednesday, January 2, 2002

DETROIT - Prudential Securities Inc. downgraded Kmart Corp.'s stock from "hold" to "sell" on Wednesday, citing disappointing fourth quarter results and the company's "precarious" cash position. Prudential said it would not be surprised if the Troy, Mich.-based retailer filed for Chapter 11 bankruptcy if trends do not improve in the next six months. Kmart shares dropped 68 cents, or nearly 13 percent, to $4.78 in afternoon trading on the New York Stock Exchange. "You can safely, politely characterize it as a deeply discounted value stock," said David Sowerby, portfolio manager for Bloomfield Hills, Mich.-based Loomis Sayles Inc. Sowerby said Kmart's moves to reignite sales are falling flat in the face of stiff competition from Wal-Mart Stores Inc. and Target Corp. "Kmart just seems to be the third choice for consumers behind Wal-Mart and Target because they have cleaner stores, they're more modern, even better parking lots," Sowerby said. He pointed out that from December 1991 to December 2001, Target's stock price increased 696 percent, Wal-Mart's rose 291 percent, but Kmart's dropped 77 percent. A call to Kmart for comment was not immediately returned. Kmart said in a recorded message that sales from Dec. 20 to Dec. 26 were "above plan," with high-ticket items, such as television sets and video game consoles, leading the way. For the month of December, though, the retailer said its sales were "below plan"; the company had anticipated results for the month to be flat or to increase by 2 percent. The company will release complete sales results for the month Jan. 10. In November, Kmart announced a third-quarter loss of $224 million, or 45 cents per share. Excluding a hefty restructuring charge, the nation's No. 3 retailer lost $127 million, or 25 cents per share, in the quarter. The results beat Wall Street expectations, but in December, Moody's Investment Service downgraded Kmart's debt rating to junk status. Kmart Corp., http://www.bluelight.com