THE OPS NEWSLETTER
Published By: StockDiagnostics.com Volume 1, Issue 2 September 2, 2002
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Welcome to our second edition of The OPS Newsletter. Each issue of this newsletter delivers relevant information regarding new StockDiagnostics.com features such as, "News of the Week," "Company of the Week" and "Focus on The EPS Syndrome". New sections added to this newsletter are, "OPS Seedlings" and "Updates on Previously Featured Companies".
Company of the Week
Sears Roebuck & Company (NYSE: S) is the "Company of the Week" because we believe that Sears' reported "record earnings" for the first six months are suspect for the following reasons:
First, on July 18, 2002, Sears reported "record earnings" for its second quarter ended June 30, 2002. Companies reporting record earnings are generally telling their shareholders and the investment public that things could not be better. Enron reported two consecutive record earnings quarters before its sudden demise. Many public companies liberally use "record" in their press releases to maintain and increase their stock prices!
Second, Sears' calculated OPS indicates that it has reported "cashless earnings" for two quarters in a row. They are running an operational cash flow deficit; not generating enough cash to pay the taxes due on their "record earnings". See Sears' 20-quarter OPS chart.
Third, despite its negative OPS, Sears is no Enron. StockDiagnostics.com has examined Sears' cash position and their strong Balance Sheet; StockDiagnostics.com feels it is highly doubtful that two negative quarters of OPS will cause Sears' demise. However, StockDiagnostics.com would exercise caution on Sears as its negative OPS could signal a future change in its momentum.
Note: For the second consecutive quarter StockDiagnostics.com downgraded Sears OPS Ranking; this time to a "3" on August 16, 2002 (closing stock price $47.22). Sears had been previously downgraded from the highest OPS Ranking of a "1" to a "2" on May 13, 2002, at a closing price of $52.00. Sears closed on August 23, 2002 at $46.83 per share.